Daily Sovereign Debt Analysis: The Americas And The PIGS

Includes: AMOV, C, MON, TEF
by: Rajiv Tarigopula

With global stock markets roiling, more and more investors are looking to bonds to secure income streams. Here's a quick overview of what's going on today in the global bond markets, taking a look at the current state of offerings of sovereign debt securities with 10-year maturity.

The Americas

In the Americas, Colombian USD-denominated bonds are currently yielding 3.16%, the highest yield on fixed-income securities in the hemisphere. This is down from a 3-month high of 3.745%, and in fact near the 3-month low of 3.130%. Price of these securities (COLOM 8 1/8 24) currently stands at 148.75.

BRAZIL 8 7/8 24 fixed income issues are currently going for 156.7 USD, yielding 3.083%. Yield is down 2%, a new 3-month low for these bonds.

Mexican bonds offer the next highest Americas-yield, with MEX8 09/24/22 issues going for 146.29 USD, representing a yield of 2.756%. This, too, is a 3-month low yield, with yield going down over 3%. Mexico's America Movil (AMOV) has been in the news lately for its corporate fixed income issues, which may be worth some due diligence.

Canadian CAN 2 3/4 06/22 bonds are priced at 110.220 CAD, up 0.48 with yield down 5.2% to 1.623%, another 3-month low.

Finally in the Americas, U.S. government-issued T-bills offer 1.484% yield on T 1 3/4 5/22 issues, going for 102-13 USD today. This is near the 3-month low yield of 1.452%; yield on these securities has decreased 3.2%. Clearly, a flight into fixed-income issues is currently underway, representing a turbulent time for the largest asset class in the world and a whole host of potential strategies to profit from investor sentiment. Companies like Monsanto (MON), Citigroup (C), and many more are rushing to take advantage of this phenomenon.

Europe: The PIGS

Greek, Portuguese, Spanish, and Italian bonds still offer their infamously high yields for those willing to stomach the risk. Greek GGB2 02/24/23 issues are cheap at 19.525 EUR offering 24.386% yield for brave souls. Yield is down 18.3% on these bonds; however, the current levels are right around the midpoint of the 3-month range.

Portugal's PGB3.85 04/21 issues are currently going for 64.650 EUR with yield of 10.126%. This is down 1.2% but above the 3-month low yield of just below 9%. Everything is relative, though; given the state of the European macroeconomy over the last year, these bonds once yielded nearly 16% and their Greek counterparts above yielded over 30%.

Spanish SPGB 5.85 22 issues currently are priced at 95.080 EUR, yielding a lower but potentially more stable 6.553%. This yield is up 5.1%, and is towards the 3-month high of 7.076%. Investors looking for Spanish (or, for that matter, any European) equity plays may find sales and benefit from the macroeconomic instability in the region - tread carefully, but not so cautious as to miss dramatic value opportunities such as those represented by firms such as Telefonica SA (TEF), on which I am strongly bullish.

Finally, Italian BTPS 5 1/2 22 bonds are at 97.720 EUR, yielding 5.884%. This yield is up nearly 10% from issue, and just above the midpoint of the 3-month yield range. Much has been discussed regarding Italy's pivotal role in the European sovereign debt crisis; the outcome is far from certain.

As investors navigate the choppy waters of the equities markets and increasingly turn to fixed-income issues, corporate securities in this arena may be worth a closer look, given the relatively lower-yield state of sovereign debt issues in the Americas and the relatively high risk of European sovereign debt. More to come on the corporate side of fixed-income for those investigating potential investment prospects - I look forward to the conversation. Good luck.

Disclosure: I am long TEF.