Emerging Markets mostly weaker; Geo Energy pulls deal; Odea Bank prices; Venezuela drops

By Rebecca Melvin

New York, July 24 – Emerging market debt was flat to weaker on Monday as ongoing uncertainty over rates, worries of potential default in Venezuela and generally light liquidity due to summer doldrums weighed on markets.

But a meeting of the Organization of the Petroleum Exporting Countries and big non-OPEC oil producers, in which Saudi Arabia announced it will limit its own oil exports and stronger resolve emerged to hold other members to agreed limits, cheered oil markets.

The front month price for West Texas intermediate crude oil was up 71 cents, or 1.6%, to $46.48 a barrel at the end of Monday, and Brent crude was up 62 cents, or 1.3%, to $48.68 per barrel.

Middle East fixed income markets are helped by higher oil. But also helping tone in the region was a sense that a full-blown crisis related to the rift between Qatar and a Saudi-led group of Gulf region countries has been averted. Diplomatic ties have not been reestablished to Qatar, but a recent memorandum of understanding signed by Qatar and the United States to combat terrorism financing, including posting a U.S. official in the Qatari state prosecutor’s office, has helped alleviate fears, MUFG Securities analyst Trieu Pham wrote in a note on Monday.

In primary news, Geo Energy Resources Ltd., a Singapore-based mining company, announced that it has canceled a proposed offering of dollar-denominated five-year notes due to market conditions following a roadshow that began July 10.

In the Central Europe, Europe, Middle East and Africa region, Turkey’s Odea Bank AS sold $300 million 10-year Basel III-compliant tier 2 capital notes (expected ratings: B2 (hyb)/B+/) to yield 7 5/8%, according to a market source. Price talk for the notes had been in the high 7% area.

In Latin America secondary action, Venezuela remained under pressure with more sellers than buyers, especially in the front end of the curve as investors fear potential sanctions from the United States on the Latin American oil producer.

The bonds of Venezuela and its state-owned oil company Petroleos de Venezuela SA sank another 2 to 3 points on Monday, according to one source, who said the only thing that will stop the bleeding is if president Nicolas Maduro backs away from his plan to have a constituent assembly voted in to re-write the country’s Constitution.

While the opposition has fought hard and continues to do so – another national strike is slated for this week on Wednesday and Thursday after a general strike last Thursday – there seems to have been no headway in turning Maduro away from his plan.

President Donald Trump said last week that the U.S. will not stand by and watch Venezuela’s democracy crumble.

“The front end of the curve is under a lot of pressure,” a New York-based trader said, referring to the tone of the selling as “violent.”

Venezuela’s 11.95% bonds due 2031 were seen down to 42 bid, 43 offered.

Argentina was also weaker on Monday as the U.S. dollar, Argentina peso exchange rate weighs on credit, but trading volumes were not very high.

“The peso took another hit in the markets,” a trader said, quoting the Argentina 8¼% notes due 2117, or the century bond, down a point to 90.5 bid, 91 offered.

In addition to currency woes, there are concerns about an upcoming election that was pulling the market down, the trader said.

In Brazil and elsewhere in Latin America, credit was also lower,

“Everything is weaker,” a New York-based trader said.

© 2015 Prospect News.
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