EM spreads unchanged as stocks tumble; Angola starts roadshow; Venezuela flat to weaker

By Rebecca Melvin

New York, April 24 – Emerging markets debt spreads were little changed on Tuesday despite a tumble in U.S. stocks and higher U.S. Treasury yields that took the benchmark 10-year note above 3% for the first time in four years.

Among U.S.-dollar sovereign bonds, the spread on the J.P. Morgan Emerging Markets Bond Global Index stood at 320 basis points, narrower by 1 bp, shortly after the close of New York markets. The EMBI high yield portion was also narrower by 1 bp to 523 bps, and the investment-grade subsection was in by 1 bp at 182 bps.

“The broader, major parts of the indices haven’t been marked that differently,” a New York-based emerging markets debt analyst said.

Emerging markets debt continues to demonstrate resilience despite disturbances in the broader markets. “It’s difficult to know what further changes will provoke a big move in EM, but we are predicting that it will come,” the analyst said, noting that spreads are currently in the same context in which they were a year ago.

In recent days, there had been volatility in some smaller countries. For example, Armenia debt dropped after Serzh Sargsyan was made prime minister last week after he had already served as president for 10 years. But in the face of mounting public protests, Sargsyan stepped down, and Armenia rallied on Tuesday.

The Armenia index was in by 63 bps to a spread of 239 bps.

Russia and Emerging Europe were positive again in the face of the U.S. scaling back sanctions. Russia was tighter by 5 bps at 202 bps, for a 2.2% return. But they are still down for the month following U.S. sanctions imposed on a number of Russian individuals and companies.

Weak credits included Ecuador, which was wider by about 10 bps, and Uruguay, which was wider by four bps to 165 bps.

But overall there nothing standing out. “Small countries tend to bounce around a lot,” the EM analyst said. And activity remains low at current spreads levels, which are basically unchanged for the last 52 weeks, the analyst said.

In primary market action, South Africa-listed real estate investment trust Growthpoint Properties Ltd. released price talk early Tuesday for a dollar-denominated five-year note in the 6% yield area. The REIT had postponed a proposed euro-denominated note at the end of last year and was said to have priced its dollar version on Tuesday, but final terms could not be obtained by Prospect News’ deadline.

The Republic of Angola announced a series of fixed-income investor meetings in the United States and Europe for a planned offering of dollar-denominated 10-year notes, according to market sources.

The sovereign is also considering a second tranche of longer-dated bonds subject to investor interest.

More than 90% of Angola’s revenue comes from oil exports and oil prices, which have been rising steadily this month, touched a multiyear high on Monday amid strong demand, heightened geopolitical risk and somewhat tighter supplies.

Oil prices were volatile on Tuesday as investors weighed whether oil will continue to climb or drop back amid a potentially diminished commitment to production curbs among OPEC members and major producers.

Venezuela remained paused ahead of its presidential elections, now scheduled on May 20.

Petroleos de Venezuela SA bonds due 2024 and 2026 were around 26¼ to 26½, which was lower compared to the recent range of mid-27, a New York-based analyst said.

Venezuela and PDVSA bonds have moved sideways, because they are mainly “politically driven,” so the market is “waiting for the election, and we still have one month to go,” the analyst said.

The candidates kicked off their campaigns on Sunday as electoral authorities clarified campaigning regulations. There are six candidates including incumbent Nicolas Maduro, who launched his campaign via a tweet during his state visit to Cuba.

The opposition front-runner Henri Falcon, has released an economic plan “that looks okay, but the key is whether he will become president. If he doesn’t, it is meaningless,” the analyst said, noting that the consensus among market players is that the election will be rigged.

Campaigning will be permitted until midnight on May 17.

Venezuela remains in the grip of a severe economic crisis that has created hyperinflation and shortages of basic food and medicine. Malnutrition and death among infants has increased alarmingly amid shortages of baby formula and diseases like malaria are on the rise, according to reports.

Although the U.S. and other nations have imposed sanctions against Maduro and the Maduro government, there has been no step-up in pressure from the international community recently, the New York-based analyst said.

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