EM investors cautious after Fed remarks, ahead of payrolls data; spreads mostly widen

By Christine Van Dusen

Atlanta, Nov. 5 – Emerging markets assets had “a cautious open” on Thursday morning as commodities weakened and investors reacted to the increased likelihood of rate hikes next month.

“Fed speak from chair Janet Yellen at a congressional hearing yesterday has been perceived as a signal for a potential ‘lift-off’ in the Federal Open Market Committee’s Dec. 15 to 16 meeting,” a trader said.

It appears that economic data forecasts are good enough to justify multiple interest rate hikes, he said.

“This Friday, all eyes will be on the nonfarm payrolls figures,” he said.

Sovereign bonds from Turkey underperformed, with credit default swaps spreads widening, another trader said.

“Shorts remain concentrated in the belly,” he said. “But even there we are seeing some of those shorts being filled.”

Trading of Turkish banks softened a bit, he said.

This came as Turkish lender Akbank TAS announced plans to issue up to $4 billion worth of bonds, news that is “reminding us of possible supply in the near-term,” he said. “Looking at current five-year senior yields, these are OK levels for issuers, I think, and most likely where we see supply come first.”

In other trading, Dubai Islamic Bank’s perpetual bonds were “soggy,” a trader said, moving 10 bps wider on the week and 35 bps to 45 bps wider on the month.

Looking to Latin America, lawmakers from Brazil postponed for a second time a vote to determine whether offshore money can be repatriated with just a fee, not charges of tax evasion.

“We saw considerable selling of Brazil and Mexico after a very strong opening yesterday,” a trader said. “Liquidity remains extremely poor, particularly in Colombia, where the market has been virtually bid-less, or with huge bid-offer spreads, for a week now.”

Lat-Am mixed

From Uruguay, weakness in U.S. Treasuries was hurting cash prices at the open, another trader said.

Other Latin American assets were mixed on Thursday, with Brazil-based Petroleo Brasileiro SA moving a little bit lower and Vale SA unchanged, a New York-based trader said.

Latin America-focused Pacific Exploration and Production Corp. – formerly known as Pacific Rubiales Corp. – moved lower on a “somewhat troubled but not surprising earnings report,” he said.

Bonds from Mexico-based Cemex SAB de CV were higher throughout most of the curve, he said, while Colombia’s banks were weaker.

Chilean corporates outperform

Chile’s high-grade corporates, meanwhile, “overall remain the belle of the ball,” a trader said. Cencosud SA, which improved last week, held in on Thursday but did not grind higher given that buying subsided, he said. That was especially true for the 2023s, which saw only one-way flows last week.

At the end of the session, sovereign debt spreads from Latin America drifted slightly wider, with Brazil’s five-year credit default swaps spreads moving to 400 bps from 392 bps and Mexico’s to 143 bps from 142 bps.

“Cash prices bounced around with some intraday Treasury movements and finished the day 25 cents to 50 cents lower,” another trader said.

Venezuela, PDVSA dip

Venezuela saw its 2027s tick lower, moving to 44.50 from 46.50, while PDVSA’s 2017s closed Thursday at 61.25 from 62.10.

“Market flows and activity today were indicative of pre-NFP position squaring,” a trader said. “Volumes were light to start the day with activity picking up in the form of better sellers late in the afternoon. All eyes on payrolls tomorrow, which will determine our next move.”

Kazakhstan in focus

Investors were also paying attention to Kazakhstan, as the country;s currency – the tenge – hit an all-time intraday low.

Pressure on the tenge intensified after the president replaced the central bank chairman with an aide “who has to rebuild trust in the national currency, which has lost a third of its value against the dollar in less than three months,” according to a report from Schildershoven Finance BV.

In response, the sovereign’s 3 7/8% notes due in 2024 traded Thursday at 94¾ bid, 95½ offered after the previous day’s level of 94½ bid, 95½ offered.

Kazakhstan’s 5 1/8% notes due 2025 traded at 101.37 bid, 101.87 offered on Thursday. On Wednesday the notes were seen at 100.56 bid, 101.56 offered.

New Europe sets roadshow

New Europe Property Investments plc will set out on Nov. 10 for a roadshow to market a euro-denominated issue of notes, according to a company announcement.

Deutsche Bank and JPMorgan are the bookrunners for the Regulation S deal.

The company, based in Isle of Man, has offices in Romania, Slovakia and Serbia.

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