Equity sell-off, oil decline hurt spreads, sentiment; rally in Treasuries cushions blow

By Christine Van Dusen

Atlanta, Dec. 7 – Emerging markets debt spreads were wider on Monday as a sell-off in equities and the continuing decline of oil prices hurt risk sentiment.

Against this backdrop, Honduras-based microfinance lender Central American Bank for Economic Integration priced a CHF 55 million add-on to its 0.194% notes due Nov. 19, 2021 at 99.576 to yield mid-swaps plus 68 basis points, a market source said.

UBS was the bookrunner for the deal.

In trading, the curve for Brazil's bonds was “ridiculously steep” on Monday, a trader said.

“The new Brazil 2019s have outperformed the 2025s by about 90 bps in 2015, which – with spreads in the belly still well north of 400 bps – does not make sense from the standpoint of credit fundamentals,” he said.

Said another trader: “Brazilian sovereigns, the [currency] are still outperforming. Credit default swaps are tighter by 3 bps to 4 bps too.”

Mexico's curve is another anomaly, another trader said.

“Huge pick-up in yield and z-spread, considerable improvement in liquidity, and about the same dollar price,” he said. “Still trading heavy, particularly the long end.”

Panama's bonds were mostly unchanged on Monday and bonds from Colombia faced “horrendous liquidity,” a trader said. “Generally weaker across the curve.”

In the afternoon, trading of Latin American bonds was “super-quiet,” a New York-based trader said. “Spreads [are] a lot wider. If oil does not stabilize, we will continue to trade very poorly in extremely bad liquidity.”

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