October, 12, 2018
Sovereign bonds of Pakistan, Sri Lanka and Indonesia bore the brunt of a sell-off in EM Asian dollar bonds on Thursday as a rout in U.S. stocks spread to equities in the region. BNY Mellon Investment Management says value may emerge when key headwinds recede.
Pakistan’s December 2027 USD notes slid 1.5 cents on the dollar to 90.98 cents as of 12:34 pm Hong Kong time, according to Bloomberg-compiled prices. They are set for the biggest drop in four months Pakistan’s USD bonds were the biggest losers in the Bloomberg Barclays emerging markets Asia index on Thursday.
Sri Lanka’s April 2028 notes fell 0.8 cents to 92.5 cents on the dollar; note slumped for 9th straight day to record low. Indonesia’s January 2048 notes declined 0.4 cents to 86.9 cents, the lowest since they were sold in December last year.
An IMF deal with Pakistan remains preliminary and initial numbers around the assistance package were a bit underwhelming, according to BNY Mellon. Sri Lanka may need to tap the market before new year as oil prices pressure deficits, and Indonesia’s policy flip-flop sent confusing signals for investors on state budget, says Aninda Mitra, Singapore-based senior sovereign analyst at BNY Mellon.
“What we are seeing is a tightening of global financial conditions, exemplified by rising U.S. rates, and, in that context, deficit countries with a reliance on USD debt markets are feeling a bit more heat,” he says.
“Value is opening up in selected areas,” he says. “However, we would be prefer to be more patient until at least two of these big global risks recede, namely high oil prices, U.S. rate increases, and growing trade headwinds.”