EM debt flat to weaker in light trade; Ecuador underperforms with downgrade; Turkey steady

By Rebecca Melvin

New York, Aug. 20 – Emerging markets debt was mostly flat to lower in light trade on Monday, to start what was expected to be a quiet week as late summer vacation schedules zap trading desks of personnel.

Ecuador’s sovereign notes underperformed the market with most of the country’s U.S. dollar-denominated curve down 0.5 point after Fitch Ratings downgraded Ecuador’s long-term foreign currency issuer default rating to a B- with a stable outlook and a B short-term local currency issuer default rating.

Fitch said the move was made in light of evidence of increased fiscal financing constraints as the country’s key metrics such as debt and interest burdens deteriorate and economic growth weakens.

Ecuador’s 7 7/8% notes due 2028 traded down about 0.5 point to 86¾ bid, 87.40 offered, and Ecuador’s 8 7/8% notes due 2027 were down 0.5 point to 92.14 from 92.64 on Friday.

“The downgrade of Ecuador’s long-term foreign currency issuer default rating to B- reflects evidence of increased fiscal financing constraints amidst a steady deterioration of Ecuador’s key metrics, including rapidly rising government debt and interest burden as well as weaker economic growth performance relative to the B median,” Fitch said in a news release.

Fitch also downgraded its rating of Empresa Publica de Exploracion y Explotacion de Hidrocarburos Petroamazonas EP’s 4.625% notes due 2020 to B-/RR4 from B/RR4. The Petroamazonas notes are covered by a sovereign guarantee, which constitutes an unsecured obligation of the sovereign.

Turkey’s sovereign bonds were better offered but not down notably after two ratings agency downgrades on Friday from S&P Global Ratings and Moody’s Investors Service, with the ratings news “kind of ‘in the price’ already,” a London-based trader said.

Investors were eyeing Venezuela’s chaotic political and economic situation as president Nicolas Maduro moves to devalue the currency by 95%, raise the minimum wage to $30 per month from $1 per month and allows gasoline prices to float in alignment with international levels (although many Venezuelans will still be able to purchase subsidized gasoline).

Petroleos de Venezuela SA’s 8½% bonds due 2020 were unchanged on Monday at about 86.9 bid, 88.1 offered. The bonds had improved modestly last week after dropping to 85 from 90 in reaction to the Turkish lira crisis.

Most of the rest of PDVSA and Venezuela’s sovereign curve bond prices were stagnant in the low 20s as the nation remains in default on about $6 billion of international debt.

The PDVSA 2020 bonds are higher as they are backed by shares in the company’s U.S. refining Citgo unit.

Turkey’s bonds were looking little changed although the banks were still well offered, a London-based trader said, after S&P and Moody’s downgraded the sovereign late Friday.

S&P said it lowered its long-term currency sovereign credit rating to B+ from BB- and its long-term local currency sovereign credit rating to BB- from BB, citing expectations for continued extreme volatility for the Turkish lira and projected balance of payments problems.

Moody’s downgraded Turkey’s long-term issuer ratings to Ba3 from Ba2 and changed its outlook to negative, citing expectations of continuing weakening of Turkey’s public institutions and reduced predictability in Turkish policy making.

The iShares J.P. Morgan U.S. Dollar Emerging Markets Debt ETF was down 14 cents, or 0.1% at 106.88 at the end of the New York session. But it had improved from about a 30 cent decline early Monday.

The lira stood at 6.18 lira to the U.S. dollar on Monday.

Meanwhile there are overdue coupons now on $2.5 billion 7¾% bonds due 2019; $2.5 billion 8¼% bonds due 2024; $1.6 billion 7.65% bonds due 2025; $3 billion 11¾% bonds due 2026; $2 billion 9% bonds due 2023; $2 billion 9¼% bonds due 2028; $1 billion 7% bonds due 2018; and $1.5 billion 6% bonds due 2020.

© 2015 Prospect News.
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