NEW YORK, Aug 12 (IFR) - LatAm credit markets suffered another volatile day on Wednesday as investor sentiment swung from relief over Moody’s stable outlook for Brazil to ongoing worries about Chinese growth.
Brazil’s five-year CDS started the day tighter at 307bp, widened out 319bp only to snap back to 307bp, according to one trader.
LatAm investors found some relief in Moody’s decision on Tuesday to assign a stable outlook to Brazil while also downgrading the credit to Baa3 - a notch above sub-investment grade from Baa2.
The move was seen providing the country with a temporary reprieve from a rapid downgrade to junk - a base case scenario for many who had been predicting that Moody’s would assign a negative outlook or even cut the credit two notches to Ba1.
The length of the relief rally - generated by some short covering - may be brief, however, as investors brace for a tough year as Brazil’s economy sinks into a recession.
News today that Brazilian retail sales had contracted for the fifth consecutive month in June - the country’s longest consumer slump in 14 years - only exacerbated those concerns at a time when political risks are on the rise.
Reuters reported Wednesday that President Dilma Rousseff was granted more time to respond to allegations that she had doctored public accounts as her opponents seek legal backing to impeach her.
For now the sovereign’s 2025 were ending higher in price terms to close at around 94.25-94.75, up from the 92.65-92.90 seen on Tuesday before the Moody’s downgrade.
Meanwhile, markets had a mixed reaction to Moody’s decision today to downgrade the ratings of 12 Brazilian banks after cutting the sovereign’s rating to Baa3 on Tuesday.
This included dollar bond issuers such as Itau Unibanco, Bradesco, Banco do Brasil, BNDES and Caixa Economica. Itau 2021s were up about 1/4 point at 100.25-100.75, but Banco do Brasil’s 8.5% perps fell to around par today as investors took the opportunity to sell on yesterday’s bounce.
Elsewhere, the new 2017s issued by Venezuelan oil company PDVSA saw substantial volumes today as investors sought to buy a bond that partially amortizes in November. “You get about a third of the principal back plus the coupon,” said a broker quoting the bonds some 5/8 higher at 65.25-65.625.
Meanwhile, Argentina bond prices were holding steady despite a drop in soybean prices following China’s devaluation. Bonar 2024s were being quoted at 95.65-96.15. (Reporting By Paul Kilby; editing by Shankar Ramakrishnan)