Morning Commentary: EM debt weaker as Treasury yields climb; Romania eyes dual trancher

By Rebecca Melvin

New York, Oct. 4 – Emerging markets debt was weaker again on Thursday as U.S. Treasury yields moved up strongly for a second straight day; but the EM primary market remained active.

Debt prices were all lower, and spreads were “a mixed bag,” said a trader, who is focused on Middle East and Africa debt.

Longer dated, lower-beta names were the hardest hit in cash price terms, including South Africa, but Lebanon and Bahrain were well bid, the trader said.

The yield on benchmark 10-year Treasuries climbed to 3.20% as more U.S. economic data showed better-than-expected strength. On Wednesday, the sell-off in Treasuries gave yields a 12 basis points boost, their largest one-day jump since November 2016.

But the primary market remained robust. Romania announced plans to price two tranches of euro-denominated notes, and pricing was guided on those 10- and 20-year notes through the session with final pricing expected late Thursday.

Pricing of the 10-year notes was guided to a yield spread of mid-swaps plus 200 bps to 205 bps, which was tightened to initial price talk of mid-swaps plus 210 bps to 215 bps.

Pricing of the 20-year notes was guided to a yield spread in the mid-swaps plus 275 bps area. That level was tightened from initial talk in the mid-swaps plus 280 bps area.

In addition, African Export-Import Bank (Afreximbank) launched $500 million of five-year notes to yield mid-swaps plus 210 bps, which is a revival of a deal that was originally unveiled in May but postponed due to market weakness.

Afreximbank is a Cairo, Egypt-based international bank specializing in trade-related financing for Africa.

Also new to the market was Colombia’s combined $2 billion in new 10-year notes and a tap of its 5% notes due 2045.

The $1.5 billion tranche of new 4½% notes due 2029 priced at 99.362 to yield 4.578%, or a yield spread of Treasuries plus 140 bps. That pricing was tightened from initial talk for a yield in the area of Treasuries plus 165 bps.

The $500 million tap of the 5% notes due in 2045 priced at 97.35 to yield 5.184%, or a yield spread of Treasuries plus 185 bps.

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