Ratings agency moves push spreads wider for South Africa, Lat-Am; Chile continues roadshow

By Christine Van Dusen

Atlanta, Dec. 10 – Emerging market credit spreads moved wider on Thursday as investors kept an eye on Latin America and South Africa, which both were being watched by ratings agencies.

Five-year credit default swaps spreads for South Africa opened 20 basis points wider on Thursday after the sovereign's president fired his finance minister, a strategist said.

“No reasons were delivered, but the surprise move is seen as negative,” he said.

This could also weigh on the sovereign’s rating, following its recent downgrade by Fitch Ratings and an outlook revision to negative from Standard & Poor's. The latter ratings agency has also revised its outlook on several South African banks, including FirstRand Bank Ltd., he said.

Later in the morning, South Africa's CDS moved to 333 bps, about 42 bps wider.

“Uncertainty over [South Africa's] financial policy may hurt investors' confidence and trigger funds outflow from the local assets,” according to a report from Schildershoven Finance BV. “We expect some price correction in sovereign bonds until the new finance minister announces his view on the South African economy.”

From Latin America, trading remained sluggish and weak on Thursday, a New York-based trader said.

In deal-related news, Chile is on a roadshow for a possible issue of notes, a market source said.

BofA Merrill Lynch, Citigroup, HSBC and Santander are leading the marketing trip, which began on Tuesday.

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