Morning Commentary: Petrobras bonds down 2-3 points on CEO resignation news; EM debt broadly lower

By Rebecca Melvin

New York, June 1 – Petroleo Brasileiro SA’s 10- to 30-year bonds were down 2 to 3 points early Friday after unexpected news that its chief executive officer has resigned, a New York-based EM analyst said.

The move lower extended a slide for the Petrobras bonds this week.

Petrobras’ 5¾% bonds due 2029 were printing lower again in the 87 to 88 context after they had slipped another ½ point on Thursday after slipping about ½ point on Wednesday.

The resignation of Petrobras’ Pedro Parente sent the Brazilian currency lower and struck fear in the hearts of investors that Petrobras will now continue to move away from market-oriented policies that have marked its turnaround efforts in the last two years.

“But we’ll have to wait for the replacement to see what comes next for Petrobras,” the analyst said.

The resignation comes after a nationwide trucker strike in Brazil protesting high diesel prices. The crippling strike forced the government to lower diesel prices, a step contrary to what Parente had outlined as his objective of aligning prices more closely with international markets.

The Petrobras news together with a better-than-expected U.S. May jobs report both pressured the rest of emerging markets debt down, the analyst said.

Sellers remained in force in emerging markets debt as U.S. stocks, Treasury yields and the U.S. dollar gained.

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