EM bonds stabilize on better oil prices; FOMC meetings begin; Brazil misses out on uptrade

By Christine Van Dusen

Atlanta, Dec. 15 – Most emerging markets bonds improved on Tuesday, taking a break from their steady widening and lowering, as oil prices stabilized at the start of the Federal Open Market Committee meetings.

“The tone seems to be a touch better as we take a breather,” a London-based trader said. “Most accounts have been on the sidelines, awaiting the Fed, before deploying the cash.”

The Fed, which began its two-day meeting on Tuesday, was expected to announce on Wednesday a rate hike of 25 basis points.

Cash bonds from Turkey were better on Tuesday after a great deal of selling, he said.

“Cash also looks cheap to credit default swaps here, as the Street is probably long of cash,” he said. “One-year to three-year bonds are for sales as everyone tries to avoid front-end exposure to rates.”

Overall, economic data for Turkey “seems resilient,” even without having “a working government for a large part of the year,” he said. “Going forward we should see business activity pick up, now that there is a government in place.”

In other trading on Tuesday, bonds from Peru improved, with spreads moving in.

But Brazil missed out after federal police searched the home of the Lower House speaker, a trader said.

“The market is still nervous that we are in for more pain in Brazil,” he said. “But so far we haven’t seen any exacerbated selling.”

Overall, there were “good two-way flows to start the session, with better buyers of Latin American low-beta paper emerging later in the day,” another trader said. “Tomorrow we have the Fed, which is sure to keep markets on edge and be a cornerstone in setting the tone for the year ahead.”

Lat-Am in focus

Five-year credit default swaps spreads for Brazil closed at 455 bps from Monday’s 474 bps, while Mexico’s tightened to 175 bps from 184 bps.

Argentina’s bonds moved higher while Venezuela’s curve flattened somewhat, he said.

Most corporate names from Latin America traded higher on Tuesday afternoon, another New York-based trader said, with Brazil-based Petroleo Brasileiro SA jumping as much as 1 ½ points and Vale SA moving up 3½ points on its 2022 bonds.

Mexico-based Cemex SAB de CV almost moved up on Tuesday, he said.

Afreximbank gets attention

African Export-Import Bank (Afreximbank) saw two-trading of its 4¾% notes due 2019 in the 102.75 to 103.25 context.

Also from Africa, investors continued to watch South Africa, where the new finance minister spoke and said the government would work to protect the sovereign’s investment-grade ratings.

The minister also said the country would “stay on course for financial consolidation,” a trader said. “The reassurances were much needed.”

Still, Fitch Ratings remained unconvinced, according to a statement, and “questions over the direction of economic policy remain.”

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