EM LATAM CREDIT: YPF: LNG Expansion - Positive
(YPFDAR: B2/B-/CCC+)
The govt-controlled energy company's annual production goal is 24-30mn tons of liquified natural gas as YPF CEO Horacio Marin discussed at an industry conference in Milan a few days ago which we commented on:
https://mni.marketnews.com/4nlyZ8m
At the conference he alluded to seeking other partners for the initiative both as investors and off-takers and today we see reports that mention Exxon as a potential buyer of the LNG that will be produced in the Vaca Muerta region of Argentina.
While the initial focus from the Vaca Muerta region has been oil, and there is a multi-billion dollar pipeline being constructed to transport oil to ports for export, now we see big plans for natural gas as well.
There is growing demand in Latin America as well as the rest of the world for LNG, though of course there is plenty of competition already. This could be a major source of hard currency for Argentina in the years to come and a major positive longer term if politics will allow.
YPFDAR 34s were last quoted 98.12, almost unchanged today according to Bloomberg, down about 2 points since June 30th and down about 1/2 point from new issue pricing January 2025.
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GILTS: Holding Firmer But Lagging Peers
While gilts have participated in the wider rally in core global FI markets, futures still haven’t closed the opening gap lower that was driven by Tuesday’s labour market data release (~92.25).
- Ongoing fiscal worry helps explain some of today’s gilt underperformance vs. both Bunds and Tsys, with the Guardian pointing to potential inheritance tax tweaks in the Autumn Budget overnight.
- Futures have traded as high as 92.04.
- Yields 3-5bp lower, curve a touch flatter.
- Benchmarks hold within pre-existing multi-week/month ranges.
- 50s back from yesterday’s cycle closing high.
- BoE-dated OIS and SONIA futures are pretty steady on the day.
- The former shows 16.5bp of easing through Dec and the next 25bp cut fully discounted through February. Contracts are little changed to ~2bp more dovish on the day.
- Meanwhile, SONIA futures are flat to +2.5.
- Little of note on the UK calendar today, with monthly economic activity and Q2 GDP readings due tomorrow.
BoE Meeting | SONIA BoE-Dated OIS (%) | Difference vs. Current Effective SONIA Rate (bp) |
Sep-25 | 3.969 | +0.2 |
Nov-25 | 3.863 | -10.4 |
Dec-25 | 3.802 | -16.5 |
Feb-26 | 3.691 | -27.6 |
Mar-26 | 3.642 | -32.5 |
Apr-26 | 3.561 | -40.6 |
CROSS ASSET: Bid In Bonds Extends, SOFR Options Flow Hedges Risk Of 50bp Sep Cut
Pullbacks from session highs in e-minis and crude oil futures seem to promote an extension of the rally in bonds.
- Note that SOFR options flow witnessed over the past couple of sessions has been geared towards an outsized 50bp cut in September, an idea outlined by Tsy Secretary Bessent on a couple of occasions over the last 24 hours.
- While such a move doesn’t appear likely at this stage, and we do not know the true driver of the flow, it is worth highlighting.
- Note that a 25bp cut is fully discounted for the September FOMC.
UKRAINE: Macron Says Trump To 'Fight' For Trilateral US-Russia-Ukraine Talks
Comments beginning to come through from European leaders following the video call with US President Donald Trump ahead of the Russia-US leaders' summit in Alaska on 15 August. Ukrainian President Volodymyr Zelenskyy, in Berlin alongside host, German Chancellor Friedrich Merz, says that there are "No talks without Ukraine", and that "There should be a meeting of three leaders." Zelenskyy calls for more sanctions on Russia, and says he hopes a ceasefire will be the primary topic in Putin-Trump talks. French President Emmanuel Macron claims Trump would "fight" for a trilateral meeting, possible in Europe.
- Comments from Merz: "We want Trump to be successful in Anchorage on Friday...European and Ukrainian security interests must be upheld in Alaska...We made clear to Trump, a ceasefire must come first in any agreement." Merz: "There is no question of legally recognising Russian territorial holdings, Trump largely shares our view on this."
- Macron: "Trump said he wants to obtain a ceasefire in Ukraine during his meeting with Trump...Trump also said that any territorial issues can only be negotiated with Ukraine." Macron: "Nothing is off the table concerning a new sanctions package against Russia...There haven't been serious talks about a Ukraine-Russia territory swap."
- NATO Secretary General Mark Rutte says NATO "appreciates Trump's leadership and close coordination with allies," and that "the ball is now in Putin's court."
- European Commission President Ursula von der Leyen says, "Today Europe, the US and NATO have strengthened the common ground for Ukraine...We will remain in close coordination."
