Venezuela drops following elections; Abu Dhabi mostly flat in active trade; Gabon slips

By Rebecca Melvin

New York, Oct. 16 – Venezuela and Petroleos de Venezuela SA bonds were for sale on Monday with most of the curve down by about 2 points following regional elections in that country on Sunday which resulted in a resounding but unexpected victory for the ruling party.

“Most of the curve is well offered,” with near-dated paper suffering the largest losses, a trader said Monday afternoon.

The PDVSA 2020 bonds were seen 83 bid, 84 offered. The Venezuela 2022 bonds were 44 bid, 45 offered.

“The main issue is whether stepped up sanctions will cause a rebound in prices or not,” the trader said.

Of 23 state governor elections, 18 were victories for the ruling party of President Nicolas Maduro and only five were won by candidates of the opposition coalition. Many, including Eurasia Group, expected the opposition coalition to win an overwhelming majority of the positions.

“People believe that these elections were a fraud and the international community will step up sanctions. But they have not been able to produce evidence of fraud, which means there is less room now to justify sanctions,” an East Coast-based trader said.

Yet fraud is highly suspected given that 80% of Venezuelans are against Maduro and he still manages to get most of the results, the trader said.

Most of the Venezuela and PDVSA bonds fell below 40 on Monday – a strong move that was more decisive than last week’s weakness when the Maduro government did not make interest payments for $349 million on five different series of notes.

Payments due last week on five issues included a $28 million coupon payment for the Electricidad de Caracas bond that matures in 2018, $81 million for PDVSA 2027s, $41 million for PDVSA 2037s, $97 million for Venezuela 2019s and $103 million for Venezuela 2024s.

Elsewhere, Abu Dhabi government bonds were active in the early session on Monday with spreads closing out mostly flat to wider by 1 basis point, according to a market source.

There was volume in Abu Dhabi 3 1/8% notes due 2027, which were seen 1.5 bps tighter and printing between 99.30 bid, 99.40 offered.

The long-dated Abu Dhabi 4 1/8% notes due 2047 last printed at 161, with a z-spread about 0.5 bp wider at plus 157 bps. Many had considered this bond cheap, according to a London-based trader.

Meanwhile, there was no notable selling of Gabon’s notes on the heels of a downgrade by Fitch Ratings to B from B+ with a negative outlook. In fact, the notes were seen tighter by about 3 bps, according to the trader.

The credit rating agency cited sharp deterioration of Gabon’s fiscal and external positions, an accumulation of large domestic and external arrears and a sharp rise in public debt, following the oil price shock starting in 2014.

Overall the early session in emerging markets of Africa and the Middle East was fairly active and tone was positive, a market source said.

Turkey’s Turkiye Petrol Rafinerileri AS (Tupras) was able to price its deal that was postponed last week due to an explosion at one of its refineries. Tupras priced $700 million 4˝% seven-year notes at par to yield 233.1 bps over Treasuries, a market source said.

The notes priced at the tight end of final guidance of 4˝% to 4 5/8%.

Proceeds will be used to redeem or pay interest on the issuer’s $700 million of 4 1/8% notes due May 2, 2018.

In economic data on Monday, U.S. consumer prices rose 0.5% in September, boosted by higher gasoline prices at the beginning of that month. But core CPI rose only 0.1% month over month despite the disruption of refinery output due to the hurricanes, suggesting that underlying prices remained steady.

The new data supports the FOMC minutes, which were released last week which showed some members were concerned that structural factors were at play in keeping price growth muted.

Other economic data expected this week includes U.S. housing data, eurozone inflation data and U.K. inflation, employment data and retail sales, as well as China GDP, retail sales, production, inflation RBA minutes and also employment and New Zealand inflation.

© 2015 Prospect News.
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