EM LATAM CREDIT: Colombia: New EUR 3,7, 10s Fair Value
(COLOM; Baa3/BBneg/BB+neg)
“MANDATE: Colombia EUR Benchmark; 3Y, 7Y, Long 10Y” – Bbg
IPTs 3Y: N/A
FV 3Y: MS+135bp Area
IPTs 7Y: N/A
FV 7Y: MS+240bp Area
IPTs Long 10Y: N/A
FV Long 10Y: MS+325bp Area
• The Republic of Colombia mandated fixed income investor meetings leading to new EUR benchmark-sized 3, 7 and long 10-year senior unsecured note issuance. Use of proceeds will be to refinance existing debt including the tender offer for a March 2026 EUR1.35bn issue and USD COLOM bonds bought back in the secondary market.
• COLOM does not have long term EUR debt outstanding and there are a very limited number of LATAM sovereign EUR bonds, so we look to the differential in the Mexico (MEX; Baa2neg/BBB/BBB-) USD vs EUR credit spread curves and then add that to the existing COLOM USD curve to estimate a fair value for new EUR COLOM notes.
• The spread in shorter maturity issues was about 30bp, and the longer dated issues was 22bp. MEX 2028 EUR notes were quoted at z-spread 66bp while MEX 2028 USD notes are at z-spread 97bp. MEX EUR 32s were quoted z-spread 162bp while MEX USD 32s were quoted z-spread 192bp. MEX EUR 37s were quoted z-spread 228bp while MEX USD 37s were quoted z-spread 250bp.
• COLOM USD 2028 derived level gives us z-spread 155bp less 30bp to arrive at a z-spread 125bp. COLOM USD 2032s were quoted as z-spread 260bp less 30bp equals 230bp. COLOM USD Nov. 2035s were quoted z-spread 334bp, less 22bp leaves us with 312bp. We added a new issue concession across the curve.
• As a check we also looked at the Chile (CHILE; A2/A/A-) sovereign curves and observe the CHILE EUR 32s at a z-spread of 89bp vs CHILE USD 32s at 112 z-spread so a difference of 23bp. We looked at Peru 33s in EUR vs USD and also saw about a 30bp differential in z-spread.
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AUSSIE 10-YEAR TECHS: (U5) Recovers With Treasuries
- RES 3: 96.501 - 76.4% of the Mar 14 - Nov 1 ‘23 bear leg
- RES 2: 96.207 - 61.8% of the Mar 14 - Nov 1 ‘23 bear leg
- RES 1: 95.960 - High Apr 7
- PRICE: 95.710 @ 14:34 BST Aug 8
- SUP 1: 95.415/95.300 - Low May 15 / Low Jan 14
- SUP 2: 95.275 - Low Nov 14 (cont) and a key support
- SUP 3: 94.707 - 1.0% 10-dma envelope
Aussie 10-yr futures received a boost from the US Treasury rally that followed a poor NFP print. This keeps Aussie 10-year futures toward the top end of the recent range. To the upside, next resistance is at 96.207, a Fibonacci retracement point. Next support undercuts at 95.420 (pierced), the Feb 13 low, ahead of 95.275, the Nov 14 low and a key support. Clearance of this level would strengthen a bearish condition.
SECURITY: Trump To Sign Trilateral Peace Accord With Armenia/Azerbaijan Shortly
US President Donald Trump is shortly due to sign a trilateral peace agreement with Armenian Prime Minister Nikol Pashinyan and Azerbaijani President Ilham Aliyev at the White House. LIVESTREAM The event will provide another opportunity for Trump to style himself as peacemaker, after touting success in brokering peace deals between Rwanda/Congo, Cambodia/Thailand, and India/Pakistan.
- The accord aims to resolve a decade-long dispute over the sovereignty of Nagorno-Karabakh - a breakaway Azerbaijani province that was under de facto Armenian control from the dissolution of the Soviet Union until a 2020 war.
- Trump described the meeting on Truth Social as a “historic peace summit,” noting that the US will also sign “Bilateral Agreements [to] fully unlock the potential of the South Caucasus Region.”
- White House spokeswoman Anna Kelly told reporters that Trump would sign deals with both Armenia and Azerbaijan on energy, technology, economic cooperation, border security, infrastructure and trade.
- A White House official said: "It's about the entire region, and [the leaders] know that that region is known to be safer and more prosperous with President Trump."
- Reuters reports that the US will have development rights to build transportation links in the strategic Zangezur Corridor, a mountainous stretch of Armenian territory between Azerbaijan and its Nakhichevan exclave.
- Politico notes: “But whether this is just a photo opportunity or a lasting end to a conflict that has undermined stability in a region dominated by Russia and Iran will depend on whether the US can address several key challenges.”
FED: Balance Sheet Runoff Continues At Steady $20B/Month Pace (2/2)
Fed asset holdings were little changed in the past week. SOMA runoff totaled $2.8B (composed of $4.2B less nominal Tsy holdings and $1.4B more TIPS), with emergency lending/liquidity facilities $0.7B lower.
- Over the last 4 weeks, the $20B/monthly expected QT pace was roughly adhered to: MBS fell $18B, with Treasury net holdings down around $2B (a fall in TIPS holdings offsetting a slight rise in nominals).
- Discount window usage accounted for the fall in lending facility usage this week; takeup is now down to $4.9B, down $1.3B in the last month and down from the 1-year high of $6.4B set in July which looks to have been a temporary blip higher.
