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+165bp Area
IPTs 7Y: N/A
FV 7Y: MS+275bp Area
IPTs Long 10Y: N/A
FV Long 10Y: MS+350bp 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 03/29s were quoted zspd 165bp, COLOM USD 32s were zspd 251bp, COLOM 11/2035 were zspd 325bp. We look to the differential in the Mexico (MEX; Baa2neg/BBB/BBB-) USD vs EUR credit spread curves, though a scarcity of LATAM EUR paper may account for the tighter spread valuation.
• The spread in shorter maturity MEX EUR issues was 30bp tighter than the MEX USD credit spread, and the longer dated issues was 10-20bp. We anticipate this COLOM issuance will be larger than usual to fund the USD bond buyback as well as the country’s fiscal deficit so that may absorb any difference in spread valuation.
• We compare EUR denominated EM sovereign bonds in CEEMEA. TURKEY EUR 31s were quoted at g-spread 280bp and Turkey trades wide to COLOM in USD bonds. Turkey (TURKEY; Ba3/BB-/BB-) just issued USD2bn 10-year notes at 7%, or T+293bp. That compares to COLOM 11/2035s at 6.78%, or T+271bp. If we apply that 22bp differential to TURKEY EUR 31s we get an implied value of MS+258bp for a COLOM EUR 2031. Additionally, TURKEY USD 31s were quoted z-spread 305bp, so they trade at a tighter spread than EUR.
• Romania (ROMANI; Baa3neg/BBB-neg/BBB-neg) EUR Feb 2036s were quoted zspd 331bp. ROMANI USD 2032 notes were quoted at a z-spread 234bp while COLOM USD 32s were at z-spread 251bp.
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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.
