EM weaker to start shortened week; selloff hits South Africa; Papua New Guinea eyes deal

By Rebecca Melvin

New York, Sept. 4 – South Africa’s bonds sold off on Tuesday with spreads pushing out for both sovereign and corporate bonds as the rand slumped amid credit risk worries following the country’s unexpected contraction in second-quarter GDP, according to market sources.

The broader emerging markets debt market was weaker amid weakness in other key currencies, including the Turkish lira and Argentine peso, as the U.S. dollar strengthened.

South Africa’s sovereign curve widened 17 basis points to 22 bps on the session, according to a London-based trader.

Meanwhile, South African electricity public utility Eskom Holdings SOC Ltd., which priced $1.5 billion of 10-year notes in two parts last month, was also finding little support, the trader said. And there were retail sellers of FirstRand Ltd.’s 6¼% 2028 notes, of which $500 million priced in April, as well as Barclays Africa Group Ltd., which also traded in decent size on Monday.

Credit default swaps for South Africa were last at 258 bps to 258 bps.

In markets overall, CBOE Volatility, commonly referred to as a fear gauge, was up 8% on the day to 13.83 and up 23% for the month.

Nevertheless, Papua New Guinea mandated banks and scheduled fixed-income investor meetings for a planned dollar-denominated benchmark offering of senior unsecured notes (B2/B).

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