Brazil slips as vote on pension bill is postponed; PDVSA outperforms Venezuela in trade

By Rebecca Melvin

New York, Dec. 14 – Emerging market credit was narrowly mixed on Thursday with spreads moving around in the early going in tandem with volatility in the broader markets. But weakness that marked morning trade in Brazil prevailed at the market close.

Brazil opened a little weaker before tightening somewhat and then widening out again as market players focused on news that the vote on a major overhaul of the country’s pension system was postponed until February from a proposed vote next week.

Brazil sovereign notes ended about 2 to 3 basis points wider on the day, with prices down about ¼ point in the long end of the curve and a bit less in the belly, a New York-based trader said.

“They didn’t sell off massively but on the margin they are weaker,” the trader said.

Venezuela and the Petroleos de Venezuela SA bonds were trading more actively than they had all week, with the PDVSA bonds outperforming the Venezuela bonds, reversing Wednesday’s trend in these credits.

“It was the first day in a while that these were really trading,” a market source said, but suggesting that there was no real trading event.

The PDVSA 6% notes due 2022 are the cheapest bonds, trading with a 17 handle, after the price settled at 17 5/8 in a credit default swaps auction on Wednesday.

The PDVSA 6% notes are known to be the cheapest bonds in the curve. The other notes of the state-owned oil company outside of 2019 were trading between 21½ and 29½ for the shorter maturities.

Mexico’s Petroleos Mexicanos SAB de CV (Pemex)’s 6¾% notes due 2047 edged slightly better in active trade, ending the day in the area of 104 5/8 from 104.3 to 104.4 on Wednesday.

Pemex’s 3½% notes due 2020 traded Tuesday at 102 from 101½. And the Pemex 5½% notes gained ½ point to trade at 107½ from 107 on Monday.

The result of the Mexico’s state elections on Sunday, including the victory of PRI candidate Alfredo del Mazo in the State of Mexico gubernatorial elections, had cheered investors, sources said.

Latin America debt as a region has outperformed other emerging markets this past year and is eyed as a sweetheart for next year’s business.

Bank of America Merrill Lynch has an overweight view on Latin America, compared with a middle weight stance on Emerging Europe, the Middle East and Africa and an underweight on Asia.

“Given LatAm’s still attractive valuations and improving credit fundamentals, we think that the region offers the most upside within EM,” according to the bank’s emerging market corporate credit outlook dated Nov. 19.

BofA Merrill Lynch analysts highlighted several elections that will be important to watch in the region, including Brazil, Colombia and Mexico. But it forecast Latin America corporate credit to return 4.7% in 2018, compared to 3.7% for EEMEA and 2.2% for Asia.

Brazil reform vote postponed

“People are watching the reform measures in Brazil, so it’s volatile but a little weaker,” a trader said early Thursday.

There is uncertainty over when the pension reform bill vote is going to be held after a senate leader said on Wednesday that the Brazilian congress vote has been postponed to next year. But cabinet ministers said they expect the measure to be voted on next week.

Reuters reported that one senator said President Michel Temer did not have the necessary votes in the lower house to support the measure. But finance minister Henrique Meirelles said the government was still working toward holding the lower house vote next week and that the senator was only “expressing his opinion.”

The pension overhaul is considered vital to Temer’s efforts to bring Brazil’s budget deficit under control and expectations of its passage have cheered investors.

Azul SA’s 5 7/8% notes due 2024, which initially priced on Oct. 19 at 99.294, slipped from a little over 99 to 98¾.

© 2015 Prospect News.
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