EM debt mostly steady; Mexico outperforms as investors cheer budget; Venezuela pauses

By Rebecca Melvin

New York, Dec. 17 – Emerging markets debt held in overall on Monday, with market players accepting the likelihood of another rate hike by the U.S. Federal Reserve this week, but eyeing signs of dovishness going forward as worries about global growth and the U.S.-China trade dispute continue.

The Federal Open Market Committee’s meeting this week will likely conclude with a 0.25% rate hike on Wednesday, which would mark the policymakers’ fourth increase this year, but less optimistic growth expectations could slow the central bank’s rate-hiking pace in 2019.

“Originally the Fed messaged for three rate hikes in 2019, but now the market is not pricing in any hikes for 2019,” a New York-based market source said.

In the Middle East and Africa region on Monday, market tone was “OK” but activity was very muted, a London-based trader said.

The MENA region opened up better on Monday after finishing out last week generally “tired” as investors turned mostly sellers to minimize long positions heading into the mid-December weekend.

A second source, focused on central and Eastern Europe, said, “I’d say there’s very little of anything going on in CEEMEA today. Everybody is treading water.”

A third source, based in New York, said, “The new year cannot come soon enough. It’s been an OK year [to date], but now I think we are done with the year, and people are looking more to January for activity.”

But Mexico’s sovereign bonds as well as those of Petroleos Mexicanos SAB and Mexico City Airport bonds were better by about 20 cents on the day on average. That increase wasn’t that much in and of itself, but given that the rest of the market was under pressure, Mexico outperformed, a source said.

The new president’s first budget delivered to congress on Saturday was viewed positively, the source said. There are questions around some of the details, like how Mexico is going to swing a 1% improvement in GDP solely on a campaign to reign in corruption, but overall the budget was viewed positively.

The positive view on the budget seemed to cancel out any negativity stemming from the Ministry of Finance and Public Credit’s statement that it will not further amend the Mexico City Airport Trust’s revised tender offers and consent solicitations.

“The points advanced by those advisors have been reviewed with them and considered. However, we believe the revised offer addresses the principal concerns of the noteholders,” the release said.

“We believe the transaction as amended is a balanced and commercial approach to the interests of the noteholders, Mexcat and the Mexican public,” the release added.

The revisions unveiled last week were met with bondholders seeking to make the consents apply only to those bonds being tendered, “which seems like it makes sense and is logical,” a source said, but that demand has not been addressed.

“I don’t know what the outcome of the discussions will be,” the source said.

But given the questions that investors might have regarding this and the fact that the new administration of Andreas Manuel Lopez Obrador is relatively untested makes it likely that Mexico is not the first credit out of the gate in 2019. Last year, Mexico issued on Jan. 3.

Meanwhile Venezuela’s sovereign bonds and those of Petroleos de Venezuela SA were little changed after gaining 0.5 point to 0.75 point last week.

The notes didn’t react to word that a second group of creditors in as many weeks has demanded payment on a bond that is in default, a New York-based trading source said.

Investors, represented by Washington-based law firm Robbins Russell, are demanding payment on about $380 million of the 2034 bonds, according to a report on Monday.

The Venezuela’s bonds due 2034 were not trading on Monday, the source said.

The Venezuela 2022 bonds were seen 24.5 bid, 25.5 offered on Monday. The 2027 bonds were 23.57 bid, 24.75 offered.

PDVSA’s nine bond issues trade 15% to 20% lower than the sovereign curve in the mid-teens, the source said.

The creditor group’s action represents that the second such move in two weeks. Last week a group of bondholders hired law firm Cleary Gottlieb Steen & Hamilton LLP to advise it on strategic alternatives.

In the broader markets, U.S. Treasuries rose, pushing down the yield on the benchmark 10-year Treasury to 2.89% from 2.9%.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.