EM LATAM CREDIT: Cosan: Debt Reduction - Neutral
(CSANBZ; Ba2neg/BB/BB)
• Cosan implemented its debt reduction strategy following a BRL10bn ($1.85bn) capital injection in November by tendering for two local note issues with BRL1.4bn outstanding and executing a mandatory call of its 2029 USD notes with $504mn outstanding so a total of about $763mn. Cosan also recently executed a Total Return Swap (TRS) using part of its stake in Rumo (4.96%) to raise liquidity at the Holdco. We await news of potential financial support for troubled subsidiary Raizen.
• On the Cosan dollar curve that leaves $277mn 2030 and $331mn 2031 notes outstanding. CSANBZ 30s were quoted at 6.22% YTC, G-spread 266bp while 2031s were 6.35%, G-Spd 256bp. We think comps for Cosan bonds would be Hidrovias (controlled by Ultrapar), Ultrapar and Cosan rail transport opco Rumo. We don’t expect much ratings action on this news other than maybe a Moody’s outlook to stable and view Cosan as a stable ‘BB’ credit capped by the sovereign at S&P and Fitch. Cosan at tighter spread than HIDRVS and wide to UGPABZ and RAILBZ makes sense.
• Comps:
Hidrovias (HIDRVS; Ba3/NR/ BB+) 2031s: 6.16%, G-Spd 231bp
Ultrapar (UGPABZ; Ba1pos/BBB-/NR) 2029s: 5.20%, G-Spd 151bp
Rumo (RAILBZ, Ba2/NR/BB+) 2032s: 5.80%, G-Spd 186bp
• Cosan did not call their $500mn 8.25% USD perps yet despite the relatively high coupon which are callable at $100 May 5, 2026, with 30 days’ notice. Perhaps timing for the Feb. 5 call date was not possible.
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AUSSIE 10-YEAR TECHS: (H6) Marked Lower
- RES 3: 95.982 - 76.4% retracement Sep’24 - Nov’24 downleg
- RES 2: 95.960 - High Apr 7 (cont.)
- RES 1: 95.900 - High Oct 17
- PRICE: 95.160 @ 15:32 GMT Dec 19
- SUP 1: 95.120 - Low Dec 10
- SUP 2: 95.087 - 2.0% Lower Bollinger Band
- SUP 3: 94.276 - 1.0% 10-dma envelope
Aussie 10-yr futures remain well toward the bottom of the recent range, having taken out all major support levels in the process. With 95.275 cleared, prices are pushing to new contract lows, opening vol-band support through 95.087 and into 94.276. Any recoveries need to break back above 95.900 to signal near-term bullish traction.
AUDUSD TECHS: Corrective Phase Still In Play
- RES 4: 0.6759 High Oct 11 ‘24
- RES 3: 0.6723 High Oct 21 ‘24
- RES 2: 0.6707 High Sep 17 and a key resistance
- RES 1: 0.6661/86 High Dec 16 / 10
- PRICE: 0.6608 @ 15:56 GMT Dec 19
- SUP 1: 0.6593 Low Dec 18
- SUP 2: 0.6566 50-day EMA
- SUP 3: 0.6517 Low Nov 27
- SUP 4: 0.6466/21 Low Nov 26 / 21
The trend condition in AUDUSD remains bullish and the latest pullback appears corrective. The move down is allowing a recent overbought condition to unwind. Support at the 20-day EMA, at 0.6598, has been pierced. The 50-day average is at 0.6566. The area between the two averages represents a key short-term support zone. A resumption of gains would refocus attention on key resistance at 0.6707, the Sep 17 high and bull trigger.
LOOK AHEAD: US Macro Week Ahead: Long-Awaited Q3 GDP Plus Labor Updates
- The week ahead sees a slimmed down data schedule after a particularly busy few weeks, including distorted NFP and CPI reports in the week just gone. There are still some important releases though, with the highlight being the long-awaited “initial” Q3 GDP release on Tuesday.
- This report will replace what would have been the second GDP and the preliminary corporate profits estimates, with the extended tracking window of the Atlanta Fed’s GDPNow pointing to strong real GDP growth of 3.5% annualized after an average 1.6% in 1H25 (-0.65% in Q1 before 3.84% in Q2).
- Expect continued close attention on private demand, best seen by Powell’s preferred PDFP category, which is currently tracking at ~2.4% annualized for similar to the 2.4% averaged in 1H25 (1.9% Q1 before 2.9% in Q2).
- Tuesday also sees updates for the weekly ADP tracker in the four weeks up to Dec 5, getting closer to the reference period for the monthly report, after last week’s further improvement. It’s followed by useful updates for Q4 GDP tracking with durable goods for October and industrial production for both October and November, before the Conference Board consumer survey for December with its closely watched labor differential having stalled at subdued levels but not deteriorated further since September.
- Note as well that Wednesday then sees weekly jobless claims a day early ahead of Christmas Day, with continuing claims capturing the December payrolls reference period. There is currently minimal Fedspeak scheduled and we suspect this will remain the case ahead of Christmas, likely confined to media appearances if any.
