Banco do Brasil, Romania plan notes as economic data prompts caution; debt underperforms

By Christine Van Dusen

Atlanta, Sept. 1 - Risk aversion heightened and spreads widened for emerging markets debt on Thursday as economic news from the euro zone and the United States led to mixed performance, investor caution and a quiet primary market.

The JPMorgan Emerging Markets Bond Index Plus spread started the day wider by 3 basis points, and as the trading session went on most spreads widened by between 4 bps and 6 bps. By the close of the market, the spread had widened 8 bps to Treasuries plus 329 bps, with Venezuela wider by 21 bps.

"Debt seems to be tracking the mood in the U.S. stock market, where we've been seeing the turnaround from strength to now being down," a Toronto-based market source said. "Relative to EM equities, there's clear underperformance in debt with the usual higher betas underperforming."

This underperformance occurred in response to the news that the euro zone saw a greater-than-expected decline in manufacturing during August, and the United States reported decent - but not spectacular - data on jobless claims for the week of Aug. 27. The upcoming payrolls report from the United States, scheduled for release on Friday, is expected to show weakened job growth.

"September has arrived, and not really with a bang," a trader said.

Among the names of interest in the secondary market on Thursday were Kuwait's Kipco, Dubai, Cairo-based African Export-Import Bank (Afreximbank) and Turkey's Akbank.

In deal-related news, Brazil-based lender Banco do Brasil SA and the Republic of Romania were planning notes.

"It's pretty slow today," a New York-based trader said. "Yesterday was busy because of month-end, but today is a lot slower."

Kipco, Emaar, Emirates eyed

Though the day's open was a mixed bag, credit default swaps were "stubbornly well bid," a London-based trader said.

"I seem to keep looking at my risk and finding it much easier to source paper than sell paper," he said. "I can't stress enough how each bond has its own little dynamics and street technicals."

He was keeping a close eye on Kuwait-based Kipco's 2016s, which were seen with a 110 handle early in the session on Thursday. Abu Dhabi National Energy Co. was also holding in well, especially in the belly and the long end of the curve.

"There is paper around, front end," he said.

Dubai sovereign paper and the long end of Dubai Water and Electricity Authority remained fairly active, a trader said, pointing out that DEWA's 2020s saw good interest in the high 102s. And better buying was seen for Emaar Properties and Emirates.

"DEWA '16s, on the other hand, are squeezed with not as many bonds around, hence the richness to the 2015s and 2020s," he said.

Aldar sees local support

Abu Dhabi's Aldar Properties continued to trade well. "There's local support now at 109 mid," a trader said.

Also from the Middle East, Qatar's Qtel International saw its 2016 notes trading at 101.05 bid, 101.30 offered on Thursday while Dar Al-Arkan International Sukuk Co. II's 2015s saw retail trading at 94.12 bid, 95.62 offered.

"Overall it's slightly more balanced here, with the global picture a little softer," he said.

Among financial companies from the region, Abu Dhabi Commercial Bank looked OK versus National Bank of Abu Dhabi, a trader said.

"The latter still has a few shorts around, following the big buy order last week," he said. "I also think HSBC Middle East's 2015s look OK."

Buyers seek out Bahrain

Names from Bahrain were seeing only buyers on Thursday, he said, with the sovereign's 2014s particularly sought after.

Looking to Africa, the recent issue of 5¾% notes due 2016 from Cairo-based Afreximbank - which priced July 20 at par - opened at 100.05 bid, 100.45 offered on Thursday.

"That's 16 bps tighter on the week," a trader said.

The notes held at that level for most of the European morning but topped par late in the day, he said.

"Senegal has a 105 handle and there is some support for Egypt's 2020s today, closing 10 bps tighter," he said. "Five-year Egypt credit default swaps were well off the wides, going out at 385 bps bid, 395 bps offered."

Meanwhile, Russia's corporates were slightly softer.

South Africa, Turkey in focus

South Africa's 2041s were seen as high as 119.5 during the afternoon before fading into the close, he said.

"Five-year South African CDS closes at 147 bid, 151 offered," he said. "FirstRand Bank is a little quiet but still feels well supported."

And Turkey's sovereign curve was a bit steeper, with Akbank's 2015s well supported on the Street. The lender's 2018s were trading at 100.5 bid, 101 offered.

In the afternoon, little action was reported for the sovereign bonds.

"Sovereigns are relatively quiet in the afternoon despite U.S. data and Turkish export numbers, which increased 29.89% year over year in August," a trader said. "We're seeing better buying interest on YapiKredi, Akbank papers and Garanti Bankasi AS' 2021s from the retail today in small amounts."

Banco do Brasil ahead

Brazil-based lender Banco do Brasil plans to issue dollar- or real-denominated notes worth up to $500 million by the end of the year.

The company has sent out requests for proposals to potential bookrunners. No other details were immediately available on Thursday.

This followed the late May news that the lender had priced $1.5 billion 5 7/8% notes due 2022 at 98.695 to yield Treasuries plus 287.5 bps.

BB Securities, Bank of America Merrill Lynch, BNP Paribas, Banco Votorantim and JPMorgan were the bookrunners for the Rule 144A and Regulation S deal.

And Romania is planning to issue dollar-denominated notes by the end of the year, a market source said.

The sovereign is expected to select bookrunners by Sept. 6.

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