EM picks up steam after Fed remarks; Lat-Am tightens; Pakistan in focus; Adani sets roadshow

By Christine Van Dusen

Atlanta, March 29 – Activity for emerging markets assets was somewhat subdued on Tuesday morning, then perked up after Federal Reserve Chair Janet Yellen’s remarks suggested interest rates could stay lower for a longer time.

“Volatility heightened today, as we close tighter and higher in the EM credit space,” a trader said. “Early on this morning, levels were lower and wider with bids getting hit, but Yellen’s testimony had markets reaching for risk assets globally.”

Latin American bonds were mixed in the morning – following Monday’s quiet but resilient session – then spreads tightened.

“We seemed to outperform most other markets yesterday,” a New York-based trader said during the morning. “Today we see a little weakness creeping in here and there, credit-specific. No more buying with reckless abandon from accounts, although client flows still remain even.”

Names like Colombia’s Ecopetrol SA moved down as much as ¾ point from Monday, as did long-dated paper from Brazil-based Vale SA, and clients lightened up on Mexico-based Cemex SAB de CV in “smaller-type pieces,” another trader said.

The picture changed after Yellen’s speech, which gave “the green light to bid up all financial assets,” another trader said.

Brazil’s five-year credit default swaps spreads closed at 367 basis points from 382 bps, while Mexico’s moved to 163 bps from 166 bps.

“Cash prices go bid, with spreads tightening and a rally in the rates market,” he said.

Meanwhile, Bahrain and its 2021s and 2026s may still have “some juice left to squeeze, if you need risk, even with all of its issues,” a trader said.

And Kazakhstan’s bonds traded “relatively well,” another trader said, even as oil struggled.

High-yield names subdued

Taking another look at Latin America, high-yield names were quieter on Tuesday, a trader said.

Venezuela’s 2027s finished at 40 from 39.90, PDVSA’s 2017s closed at 51.50 from 52, and Argentina’s Bonar 2024s ended at 107.75 from 107.80.

“Early-morning flows saw better sellers of low-beta credit, but buyers emerged in full swing as the market did a 180 from losses to gains,” he said. “With Yellen once again taking a dovish stance, markets can continue to rally until some catalyst moves us to the left.”

Elsewhere in the emerging markets universe, trading was slightly subdued, another trader said.

“Flows remain broadly positive for risk, with buyers in sovereign duration,” he said.

Pakistan eyed

Pakistan received attention on Tuesday, following Sunday’s suicide bombing in Lahore that claimed 72 lives.

“The one place that seems to be busy is Pakistan,” a trader said.

The country also approved payment on a $500 million bond due March 31 and saw the International Monetary Fund complete its 10th review of Pakistan’s three-year loan program, which will allow the country to get $502.6 million in funding.

“Locals and company scrambled to reinvest before Thursday’s 2016 bond maturity,” another trader said. “Buying seems to be concentrated in the 2019s, but we have seen them look up the curve as they resist lifting high short offers. But bids in the 2024s and 2025s seem to be super price-sensitive.”

Uruguay gets a bid

Uruguay has seen “a relentless bid” for its long-dated bonds since the middle of last week, a trader said.

“The curve has power-flattened, and the street has been bid, despite some of the risk-off tone seen in peers,” he said.

This could be due to the fact that Uruguay lagged during the recent uptrade and “is now catching up,” he said. “It can also be attributable to news of Russian investment in the country by way of [a natural gas] project.”

Gol hires adviser

Investors were eyeing Brazil-based Gol Linhas Aereas Inteligentes SA, which this week hired a United States-based financial adviser – PJT Partners Inc. – to help the airline improve its capital structure, liquidity and debt profile.

“Gol faced a perfect storm, as the Brazilian economy fell into a two-year recession, with a substantial decline in business travelling, and [the currency’s] dramatic drop,” according to a report from Schildershoven Finance BV. “Both factors were critical for the company, as Gol is mainly focused on business clients and has around 70% of dollar-denominated costs and 86% of revenue denominated in [reais].”

Some market-watchers speculate the company could default in a few months, “due to substantial amounts of debt maturities,” the report said. “We recommend investors to stay away from Gol’s bonds, as their price may become even lower.”

Roadshow for Adani

India’s Adani Transmission Ltd. will set out on Wednesday for a roadshow to market a rupee-denominated issue of notes, a market source said.

BofA Merrill Lynch, Barclays, MUFG Securities and Standard Chartered Bank are leading the marketing trip for the Rule 144A and Regulation S transaction.

The proceeds will be used for general corporate and working capital purposes, according to a company filing.

This issuer is an electric power transmission company based in Ahmedabad, India.

© 2015 Prospect News.
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