Iraq edges up; Colombia add-on trades well; Venezuela bond traders brace for profit taking

By Rebecca Melvin

New York, Aug. 3 – The Republic of Iraq’s new 6¾% notes edged up in trade and stood at 100.3 bid, 100½ offered early Thursday after the sovereign priced $1 billion of the 5½-year notes at the tight end of talk on Wednesday, according to a market source.

Emerging market debt players were cheered by the successful pricing of the Iraq notes, which represented the first international debt in more than a decade from that country, which has been ravaged by Middle East conflicts and the Iraq war from 2003 to 2011.

“The Iraq deal was a big success and a good sign that the country can come to the market and get a debt deal done,” the market source said.

He said that market tone is constructive, and while the next few weeks are expected to be quiet, the emerging primary market is expected to reopen in September with a strong mandate.

Elsewhere, the markets did not appear to be ruffled by sanctions signed into law in the United States against Iran, North Korea and Russia.

It was business as usual, a source said. The markets, including the CIS region, were trading normally albeit thinly with the summer holiday season still underway.

The Republic of Colombia’s 3 7/8% global bonds due April 25, 2027 traded up to 101 bid after the $1.4 billion add-on priced on Wednesday at 100.456.

The new Colombia bonds traded well, a syndicate source said.

The new bonds form a single series with $1 billion of 3 7/8% global bonds issued on Jan. 25, for a total deal size of $2.4 billion.

The original notes priced at 98.596 to yield 4.042%, or Treasuries plus 160 bps.

Elsewhere in Latin America, the bonds of Venezuela and Petroleos de Venezuela SA once again accounted for the bulk of trading activity, a New York-based trader said.

Prices on those bonds spiked intraday, but softened into the market close, while still remaining higher on the day, a Connecticut-based trader said.

Boosting Thursday’s trading action was speculation that President Nicolas Maduro might reach an agreement with the opposition, in which the government would permit governors and mayors elections and curb the powers to the newly-formed national constituent assembly so that it could not dissolve the actual congress, the trader said.

In exchange, the opposition would agree to end protests, and quieting unrest was seen as a way of averting any potential additional U.S. sanctions, the trader said.

Given the Chavista government’s hard line against the opposition to date it is difficult to see how an agreement can be reached, the trader said.

A second trader said of Thursday’s session that once again Venezuela/PDVSA dominated the activity and prices were “all over the place.”

Friday may be another volatile session because of an interest payment due on the debt on Saturday, but it will be Monday before the bonds can trade on the actual news of whether the payment was made or not.

“Expect some profit taking tomorrow,” a trader said regarding Friday’s session.

Interest payments due this month total a little more than $700 million and are due on the Venezuela notes due 2031, the Venezuela notes due 2018, the PDVSA notes due 2022 and the Venezuela notes due 2022.

On Thursday, Venezuela’s 12¾% notes due 2022 closed at 45½ bid, 47½ offered, which was up from 42 bid, 44 offered on Wednesday.

The PDVSA 2017 notes were 82 bid, 83½ offered, which was well off lows in recent sessions in the upper 70s. The PDVSA notes due 2021 were 42 bid, 44 offered, and the PDVSA notes due 2022 were 46 bid, 48 offered.

Meanwhile, Brazil traded a little better after President Michel Temer prevailed in a congressional vote that allows him not to go to trial for the first round of corruption charges against him.

The Brazil 2025 notes traded up to 100¾, a trader said. The Brazil 5 7/8% notes due 2019 traded up intraday to as high as 114 but settled back down to 112.7, according to Trace data.

The market sees the vote in favor of Temer as an indication that economic reforms are likely to get done including social security reform. Brazil’s current social security system accounts for the bulk of government spending and requires a constitutional amendment, or a 60% majority in Congress, to change.

On Wednesday about 51% of the lower house voted to prevent corruption charges against Temer from proceeding to the Supreme Court.

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