(ADDS details on Latin America, UPDATES levels)
By John Balassi
June 24 (IFR) - Credit markets in the Americas were hit hard again Monday in the midst of the global sell-off, with bonds plummeting in secondary trade and new issuance frozen for a fourth consecutive session.
Liquidation was thoroughly under way as the benchmark 10-year US Treasury yield hit 2.65%, up a full percentage point - meaning the cost of money has risen 60% - in just a few weeks.
Coupled with new concerns out of China, where interbank liquidity is looming as a significant problem, the rates volatility has put the brakes on new bond issues for now.
Many in the market are now looking to July 8 - the first Monday after the Independence Day holiday - as a kind of test date for new issuance if rates have stabilized by then.
“I‘m taking vacation now and going to the beach,” one syndicate banker told IFR, “since I‘m counting sheep here.”
But for others it was another day of bloodletting in “the great unwind” following Federal Reserve Chairman Ben Bernanke’s remarks about slowing the central bank’s easy money policies.
As Treasury yields surged, the CDX IG20 widened by 6bp to 99.5 in early trading before clawing back some ground to 98.25 by mid-afternoon. These are the highest levels since October.
Meanwhile the yield-to-worst on the Barclays High Yield Index moved out to 6.62% on Friday and is now 167bp wider than the all-time low of 4.95% on May 9.
The sell-off could hardly come at a worse time, as fund managers face the prospect of redemptions for quarter-end at the close of June.
That means cash needs to be raised, which means even steeper selling - and that in turn will keep companies that need to raise funds effectively shunted out of the primary market.
“After you’ve had this much volatility, you need a good few days of stability before people can take a view of where we are and start pricing risk,” said a second syndicate banker.
“It’s just too difficult to do this now.”
In Latin America, the backlog of deals is estimated to be at about US$9 billion. But there, as elsewhere, issuers are refusing to come to market until the picture becomes clearer.
And on the buy side, investors are equally wary of the heavy volatility in the market.
“There are a lot of buying opportunities and a lot of this stuff is cheap,” said one emerging markets corporate investor. “But today it is capitulation.”
That capitulation has taken its toll on recently issued bonds in the secondary markets, especially in higher-beta sectors such as metals and mining as well as energy.
The new Glencore 4.125% 2023s were quoted at T+300bp, after pricing at 210bp over Treasuries on May 22nd, and Rio Tinto 2.25% 2018s were quoted at T+160bp, following a pricing of 140bp over Treasuries.
Petrobras 2023s and 2043s are about 20bp wider at 355bp-345bp and 362bp-352bp. On Thursday those bonds were trading at 330bp and 335bp, respectively.
U.S. Treasury outlook...
U.S. corporate bonds....
U.S. municipal bonds... (Reporting by John Balassi; Additional reporting by Mike Gambale, Melissa Mott, Paul Kilby and the IFR team; Editing by Marc Carnegie)