EM improves as investors digest Brexit vote result; Ooredoo trades higher; Lat-Am sees buyers

By Christine Van Dusen

Atlanta, June 28 – Even as investors continued trying to make sense of the United Kingdom’s decision to leave the European Union – and the United Kingdom’s sovereign ratings were downgraded – emerging markets bonds steadied and equity markets opened stronger on Tuesday.

“Markets moving very fast,” a trader said.

S&P dropped the United Kingdom’s rating to AA from AAA, and Fitch knocked it to AA from AA+.

“The two rating agencies and Moody’s have also assigned a negative outlook going forward,” a London-based strategist said. “Market reaction has however been muted, given the heavy reactions on Friday and yesterday.”

Also impacting the picture, United States rates stabilized overnight and crude oil prices ticked up, he said.

“Turkey sovereign credit default swaps trade at 257 basis points, circa 5 bps tighter, while cash is around 1 bp to 3 bps tighter,” he said.

Looking to Latin America, bonds were well-bid as risk assets saw better strength throughout the session, a New York-based trader said.

Brazil’s five-year credit default swaps spreads tightened to 333 bps from 347 bps, while Mexico’s moved to 176 bps from 187 bps, he said.

“Cash prices make a strong move higher, as U.S. Treasury stability and spread tightening boost levels,” he said. “Latin American high yield finishes mixed on the day, with Argentina higher, whereas Venezuela slumps.”

Venezuela’s 2027s finished 48 from 48.75, PDVSA’s 2017s closed at 70 from 70.75, and Argentina’s Bonar 2024s ended at 114.25 from 113.75.

Argentina’s 2026s were up at 108 from 107, he said.

Lat-Am flows increase

Flows for Latin American paper, overall, picked up on Tuesday, with better buyers in good size, the New York trader said.

“All is well in EM credit world once again, as the world of negative rates is making Latin America extremely attractive,” he said. “Spreads and cash prices should continue to trend tighter and higher if markets can digest and put Brexit behind it and focus on fundamentals of EM fixed income as a relatively cheap asset class.”

Egypt central bank seeks loan

Investors were also keeping an eye on the Central Bank of Egypt, which is reportedly in talks with the International Monetary Fund for a loan of up to $7 billion.

“Both sides have denied that any formal request had been made,” the strategist said. “Egypt is looking also to issue $3 billion in eurobonds in September or October to finance its budget deficit, which is expected to reach $10 billion.”

Also from Africa, Ghana was said to be considering an issue of $1 billion of bonds “if borrowing rates are attractive,” a trader said. “Kenya might issue a eurobond in the financial year starting on July1 and expects that it could achieve cheaper borrowing rates than other African economies.”

Middle East tightens

In trading on Tuesday morning, spreads tightened for Middle Eastern bonds, another trader said.

The new issue of notes from Qatar’s Oordeoo QSC – 3¾% notes due 2026 that priced at 98.964 to yield mid-swaps plus 240 bps – traded Tuesday at 99.80 bid, 100.10 offered, a trader said.

HSBC was the global coordinator, and ANZ, BofA Merrill Lynch, Citigroup, DBS Bank, HSBC, Mizuho Securities, MUFG Securities and QNB Capital were the joint lead managers and joint bookrunners for the Rule 144A and Regulation S deal.

© 2015 Prospect News.
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