EM credit widens on ECB statement; LatAm high yield flat to weaker; Brazil to price bonds

By Paul A. Harris

Portland, Ore., July 21 – Emerging markets credit widened on the heels of a statement by European Central Bank president Mario Draghi indicating that the bank might boost stimulus later this year, a market source said.

Brazil five-year credit default swaps closed at 290 basis points bid, four points wider on the day, as news that Brazil was about to issue new long 30-year paper weighed on single name CDS, as well as the long end of the cash curve.

Mexico five-year CDS was also wider on the day at 141 bps bid, up from 139 bps bid.

After trading as high as 93.25 on the day, the emerging markets index dropped back to 93.05, ending unchanged on the session.

Latin America high yield ended flat to weaker.

Venezuela’s state-owned Petroleos de Venezuela, SA (PDVSA) notes due in 2017 finished unchanged at 76¼ bid, down from 78 bid.

Venezuela sovereign bonds due 2027 closed at 50¼ bid, down from 50.35 bid.

Argentina’s debt was largely unchanged on the session.

Turkey’s misfortunes following the failed coup attempt to displace President Erdogan have propelled investors toward other regions, a London-based trader said.

Money that left Turkish debt appeared to surface in a Wednesday deal from Kazakhstan’s Tengizchevroil (TCO), a source added.

In the primary market Brazil came with a benchmark issue of dollar-denominated bonds. The long 30-year bonds, set to mature in February 2047, came with initial yield guidance of 6%.

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