NEW YORK, July 17 (IFR) - Another raft of negative headlines out of Brazil overshadowed LatAm debt trading on Friday in what was a quiet session to close a volatile week for the asset class.
Rising political risks in Brazil are creating further uncertainty about the government’s ability to push measures through Congress and get a flagging economy back on track.
A decision by the speaker of the lower house of Congress Eduardo Cunha on Friday to break with the government of President Dilma Rousseff further complicated finance minister Joaquim Levy’s efforts to implement his fiscal plan and avoid further ratings downgrades for the sovereign.
“The government has become more difficult to manage than just two weeks ago,” said Klaus Spielkamp, head of fixed-income sales at Bulltick.
“This is why we are seeing the Bovespa and the Real suffer today.”
The Real was trading close to 3.20 against the dollar earlier today - from 3.13 quoted on Monday - while the Bovespa stock index was down about 1% on the day.
News late yesterday that Brazil’s former president Luiz Inacio Lula da Silva was being investigated for alleged influence peddling also added to the malaise hanging over Brazil amid growing calls for the impeachment of the current president.
Still, with the exception of the construction companies involved in the Petrobras corruption investigation, the country’s credit markets have been holding up relatively well, though liquidity has been very light.
Brazil 2025s were down about 10 cents on the day Friday at around 96.30, while five-year CDS was about 5bp wider at 263bp.
Bonds issued by construction company Odebrecht - whose CEO was arrested last month in connection with the kick-back investigation at Petrobras - were trading about a point lower than recent highs, according a New York-based trader.
Both the Odebrecht 2029s and its drillship-backed 2022s were hovering around 71, the trader said.
“The credit metrics of the construction companies are good, but if we keep seeing bad headlines we are most probably going to see lower levels,” he said.
Elsewhere, Argentina’s Bonar 2024s were about one point weaker at 99.50-100.00 following news Thursday that US District Court Judge Thomas Griesa would allow holdout investors to argue that those securities should be part of the pari passu injunction.
Still, some observers remain confident that holdouts will have difficulty defining the Bonar 2024s as external indebtedness, which would qualify them under the same category as the exchange bonds that the sovereign defaulted on last year.
“It is clear to me that under the Fiscal Agency Agreement, the Bonar 2024s are excluded from being defined as external debt,” said Jorge Piedrahita, CEO at broker Torino Capital.
“Griesa has not stopped them from paying the Bonar 2024s. He is only giving holdouts the right to plead their case.”
America Movil (A2/A-/A) and Telesites (expected NR/BBB-/BBB-) have wrapped up investor meetings via Citigroup, Inbursa, BBVA and Santander. The meetings were intended to discuss the new Operadora de Sites Mexicanos business and gauge interest for 144A/Reg S deals in Mexican pesos and/or USD.
Banco Santander Chile (Aa3/A/A+) has wrapped up meetings via Deutsche Bank and Santander to discuss opportunities in the domestic Chilean markets.
Jamaica (Caa2/B/B-) has wrapped up investor meetings via Citigroup. The meetings were described as a non-deal roadshow, but markets have been expecting the sovereign to raise funding to retire a PetroCaribe loan owed to Venezuela. (Reporting By Paul Kilby)