NEW YORK, Dec 14 (IFR) - Latin American bonds weakened Monday amid a spike in volatility for risk assets on the eve of a Federal Reserve meeting widely expected to implement a rates hike.
Cash bonds across the region were 5bp-25bp wider in spreads, with commodity-related sovereign and corporate credits underperforming as oil prices approached 11-year lows.
“US equities and (WTI) oil turning positive stopped the selling, but liquidity in cash is pretty slim ahead of the Fed,” one Latin America corporate bond trader told IFR.
Selling pressure also spilled over to some of the strongest and most liquid corporate credits such as telecoms company America Movil, whose bonds were some 5bp wider in spreads.
The Federal Reserve is widely expected to raise US rates for the first time in a decade on Wednesday as it wraps up its monthly policy meeting.
Concerns surrounding the US high-yield sector, where a handful of funds focused on distressed credits announced plans to liquidate their positions over the past few days, contributed to weaker sentiment across the asset class.
“People are expecting EM funds to have similar issues in the first quarter,” said the trader.
“So why would you bid for bonds now? You would rather be wrong next year when the clock resets than just before getting your bonus.”
Argentina’s international bonds weakened some after President Mauricio Macri said he would ditch corn and wheat export taxes as part of his plan to revitalize the country’s farm sector.
“It’s all positive news, but it is not putting money into the bank and they are bleeding reserves,” said a sovereign bond trader in New York. “Implementation is going to be tricky.”
Argentina’s Discount bonds softened 1 to 2 points in cash on the day, according to the trader, while Par notes were ending the session between 1/2 and a full point lower.
The notes’ strong resilience through last week’s volatility in commodity prices may also explain the slight underperformance on the day, said the trader. (Reporting by Davide Scigliuzzo; Editing by Natalie Harrison)