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NEW YORK, March 13 (IFR) - A relentless roster of bad news out of Brazil were hurting bond spreads on the country's credits Friday.
State-controlled oil company Petrobras is watching its bonds start some 20bp wider, said traders. The company's 2024s and 2044s were opening at 556bp-548bp and 546bp-536bp, respectively.
"Positions are light and you can easily move this market," said a New York based trader. "I don't think the Street is long Petrobras."
Local press reports about the oil company talking to lenders over a possible waiver on its deadline for the release of audited release has only served to exacerbate the markets nervousness.
With an increasing number of companies being pulled into the corruption scandal focused on Petrobras, investors are largely taking a hands off approach to the broader Brazilian market.
Such fears are driving the sovereign's CDS wider and pushing the Real to new highs against the dollar. The Real was being quoted at 3.24 Friday - a new 10-year high - while sovereign protection now cost around 300bp. The sovereign's 2025s also dropped another point Friday to hit 94.00 this morning.
The rest of the region has largely been immune to the fallout from Brazil but nonetheless looks weaker as emerging market currency come under increasing pressure and crudes sink lower.
"Generally it is very negative with headlines out of Brazil weighing on the market," said a broker in New York. "Risk appetite for corporates is weak and spilling over into the corporate space outside of Brazil."
The broader unease hanging over the asset class is starting to be reflected in flow figures.
EM bond funds suffered US$597.1m in outflows during the week ending March 11, though much of that can be accounted by further outflows in local currency funds which saw another US$745.61m heading for the exits, according to UniCredit citing EPFR data.
Hard currency funds continued to enjoy some inflows, albeit a relatively small US$23.63m, with blended funds receiving US$124.26m.
"Year to date, we think the flows are starting to highlight the beginning of a greater rotation out of local-currency bond funds into hard-currency and blend funds," the banks said.
"The flow dynamic, we think, is increasingly being driven by rising US treasury yields and the rising US dollar strength. The EPFR data show that, since February, US$707m have flown out of local-currency bond funds, while US$2.4bn have flown into hard-currency funds."
Despite broader uncertainty over US rates and headline risks in various emerging market countries, positive technicals, as well as large amortization payments in March, should provide some support to bond sales in coming months.
The Republic of Peru has hired BBVA, Deutsche Bank and Morgan Stanley to arrange meetings with fixed-income investors ahead of a potential bond issue, according to market sources. The sovereign, rated A3/BBB+/BBB+, will meet investors in New York on March 16, Los Angeles and London on March 17, and Boston on March 18.
Ecuador could return to the international capital markets with a new US dollar bond sale as soon as next week, as it seeks to plug a widening budget gap in the wake of falling oil prices. Investor meetings are taking place in New York today. The country is looking to raise at least US$1bn, according to a source familiar with the transaction.
Peruvian state-controlled mortgage bank Fondo Mivivienda, rated BBB+ from both S&P and Fitch, has mandated Deutsche Bank and JP Morgan to organize a series of fixed-income investor meetings. The borrower is Paris today. It will meet investors in Frankfurt on March 16.
Mexican media company TV Azteca is bringing to market a rare project bond related to the development of the Andean country's fiber optic network. (Reporting By Paul Kilby; editing by Shankar Ramakrishnan)