TARGET PRACTICE- ANOTHER SHOT AT PETROTRIN 2019

10 April 2013


Quarter-end is here once again. Institutions are either window dressing away or sitting back and smiling at their performance over the period. More importantly it’s a time to reflect on what could have been in terms of missed targets: Maybe it takes more than one shot to hit the Bullseye?

Recently, we previewed Petrotrin 2019s in our last ‘Sovereign Indicative Levels’ for those of you that receive and/or study it, but these warrant a second look, perhaps even a third or fourth.These bonds have traded 17 points higher since October 2011! (That’s right- 17% in less than 2 years), when the Euro-crisis reached its boiling point.

Are they overbought? This is a sensible question, but for me it deserves a resounding ‘NO!’ The recent 1-2pt decline in price is really a function of the market, (thanks to Cyprus, and Europe in general). Perhaps the brief strike action motivated some holders to sell, but the company remains crucial to this country’s livelihood. Furthermore, we cannot ignore the superior liquidity compared to other Caribbean credits … especially high grade names such as Trinidad & Tobago, Cayman, Bermuda etc. The issue size is more than 3x that of TRITOB 2020s (850mm vs 250mm), is wholly owned by the government of Trinidad & Tobago (rated A/Baa1), and today provides a pick-up in yield over 132bps.

So which would you rather, sit on your hands and wait for supply on the pink unicorn that is TRITOB to emerge,

or look at a bond that offers perhaps the best balance of tenor, credit quality, liquidity and yield in the region?

 

 

 

 

 

Let’s take this conversation out of the Caribbean context. What if I said PETRTT 19s outperform their LATAM counterparts when it comes to bonds of a similar tenor?

 

 

 

 

 

I know, your cynicism is getting the best of you … until, of course you see these pick back up and gather steam. Since issue, PETRTT 2019s have steadily trended upward, with a ‘sub-trend’ of price declines ->  spells at which prices appear to be sticky-> price increase. The graph below illustrates just this point.

Courtesy Bloomberg

So, what say you? Is it now time to pick up bonds cheaply vs their YTD level? I’d say so, especially since portfolio managers are likely to offload some of their exposure to show decent cash balances at quarter-end. While you may be tempted to see how low they can go, don’t be surprised if Q2 finds you buying into the rally.

 

We’d be happy to keep you abreast of the market on these and several other sovereigns and corporates.

For More Information, Please Contact Us At Info@nullFirstlinesecurities.Com.

Gerard Stephens
Account Executive
Sales And Trading

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