A Friday riddle: What begins, but has no end? US-China political tensions. The recent escalation has seen China ordering the US to close its consulate in Chengdu in a retaliatory move to the Chinese consulate closure in Houston. The risk on rally didn’t hold it’s latest streak on Thursday, further prompted by the weaker than expected Initial Jobs claims, which showed a first weekly increase since March to 1.416mn applications vs 1.3mn expected, have sent the markets into a sharp correction in the afternoon. A delay in rolling out the new US fiscal stimulus deal (that could be postponed till Monday again) also did not help the markets’ footing. SPX closed 1.2% lower, DAX closed flat and NDX ended -2.67%. Asian equities are posting 2% losses today. UST rates moved lower, with the 10-year yield closing 2bp down at 0.58% and opened another 2bps down today at 0.56%. Oil also corrected with Brent down to $43/b after reaching recent highs of $44.7/b yesterday.
European rates continue to be in the green, with the positivity coming from the recovery plan, that was finally agreed by the EU leaders earlier this week. SPGB continued to tighten yesterday, with yield dropping another 2bps, while BTPS and PGB outperformed, with the curves dropping 5bps in yield. GGB also started catching up, with yields down 3-4bps, after underperforming earlier this week on the back of tensions with Turkey. All eyes this morning will be on European PMI numbers, expected to some slightly better than expected.
GCC credit continued to be well supported this week with recent KSA 60s marking a 6pts up move on the week yesterday, seen trading at 129 levels. However, the risk off and lower oil spoiled the performance slightly today, sending the bond down to high 126 levels this morning. Egypt has lagged the risk on mood this week, however the bid finally reached the bonds yesterday, sending EGYPT 50s up 1pt to 101 levels. OMAN continued to trade strong with OMAN 47s at 89 levels today, up 80c yesterday as well.
Brazilian Banco Votorantim (BANVOR) was at the forefront yesterday, having successfully issued a new 5Y USD bond at 4.375% yield. The bonds have opened +50c from reoffer, however retraced the upside yesterday on the weaker market tone and closed bid just above the reoffer. Elsewhere, ARGENT outperformed yesterday, finishing the day +25c-1pt despite the market sentiment, while ECUA tracked the market weakness with bonds closing -25c – 1.25pts. In IG sector COLOM has finally paused its rally with COLOM 51 loosing 1pt to 109 levels after posting a whopping 10pts upward move on the week. MEX and PEMEX posted a similar move with long end down 1pt+, while CHILE and PERU outperformed, down only 20-50c on the day.
“If at First You Don’t Succeed, Try, Try Again” thought Ukraine and came to the market again yesterday with a 12Y Eurobond sale, after having to cancel the previous one due to the resignation of the NBU head. The results were rather interesting, as they managed to issue the bond at even lower yield than on the previous attempt, printing $2bn USD of the new UKRAIN 33 at 7.25% (vs 7.304% previously). Bonds however are trading below reoffer this morning (last seen 99.4 trade from 100 reoffer) as the risk off and speculator selling are weighing on the issue. Elsewhere the Russian sovereign curve tightened 4-5bp in yield, KAZAKS curve tightened 2bps in the long end while the front end remained unchanged. In Corps KMG continued to outperform, tightening 4-6bps in yield, while TENGIZ also caught the bid yesterday, sending new TENGIZ 30s 75c up in price.
In SSA, ANGOL was in the spotlight yesterday, as the much-anticipated date for the 3rd IMF review was set for July 30th. The bonds were seen up more than 2pts on the day, however, have reversed most of the move later in the evening, as the general market tone shifted. NGERIA and GHANA followed the market moves, trading up 50c-1pt on average in the morning yesterday, just to lose the momentum in the afternoon. The bonds are opening -1.5pts this morning.