EM improves after FOMC decision, then fades; Ukraine’s debt looms large; Hungary plans deal

By Christine Van Dusen

Atlanta, Dec. 17 – Investors in emerging markets assets on Thursday continued to react positively to the Federal Open Market Committee’s Wednesday decision to raise rates.

“Many investors welcomed the end of uncertainty, which prevailed over much of the year, on when the Fed would hike for the first time in nearly 10 years,” a trader said.

Said another trader, “No real dramas from the market, as the move was well-telegraphed for hikes. Risk seems to have taken the move well, but oil remains under pressure.”

Looking to Turkey, buyers were expected to emerge in the wake of the FOMC decision, another trader said.

“I guess with the better rates and uncertainty out of the way, we will see adding over the next few sessions, as most had been on the sidelines,” he said.

From Latin America, debt spreads finished Thursday mostly unchanged to slightly wider, a New York-based trader said.

Five-year credit default swaps spreads for Brazil were flat at 482 basis points, while Mexico’s tightened to 170 bps from 172 bps.

“Cash prices started the day off strong but largely faded into the afternoon as post-Fed euphoria gave way to selling,” he said.

Venezuela’s 2027s finished the session at 39.50 from 41.25 while PDVSA’s 2017s moved to 52 from 53.50, with both names “plagued” by the drop in oil, he said.

In other news, Hungary is planning to issue up to $1.1 billion-worth of eurobonds in 2016, most likely denominated in dollars, euros or yuan, a market source said.

Other details were not immediately available on Thursday.

Ukraine, Russia in focus

Investors were also watching Ukraine, which has a $3 billion issue of notes due to Russia in three days, another trader said.

“The IMF yesterday decided that the debt is considered as official sovereign rather than commercial,” he said. “While the IMF has recently amended its lending-to-arrears policy to allow emergency loans to countries that defaulted on sovereign debt, the rules still require Ukraine to show good faith.”

This could have a negative impact on bonds from Ukraine, according to a report from Schildershoven Finance BV.

Meanwhile, Russian President Putin suspended a free trade zone with Ukraine as a result of the sovereign’s plan to put together a trade deal with the European Union, the trader said.

© 2015 Prospect News.
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