Ukraine still a concern but sentiment strong; Nigeria sees sellers; demand for Russian quasis

By Christine Van Dusen

Atlanta, May 30 - Emerging markets bonds widened slightly on a calmer Friday at the end of a busy month that saw investors showing continued concern about tension in Ukraine.

"A fairly quiet start in [emerging markets] this morning, although we have seen headlines that Ukrainian forces have cleared areas of Luhansk from rebels," a London-based analyst said. "Nonetheless, we have also seen reports that pro-Russian paramilitaries have seized the headquarters of the Donetsk separatist rebels, showing the continued infighting within the separatist movement itself."

In response, credit default swap spreads from Russia were a couple of basis points wider on Friday morning, she said.

"But cash is slightly stronger," she said.

"Flows have been interesting and active this month," a London-based trader said. "Many international accounts have booked gains in the Gulf region and moved into 'better value' parts of the world, namely Russia. But locals still have cash, still have a bevy of redemptions to invest and still look first and foremost at yield rather than z-spread."

Some bids for Ukraine's bonds have been hit this week, with sovereign prices heading into Friday weaker by about a ½ point, said Svitlana Rusakova of Dragon Capital.

"Quasi-sovereigns, however, were in demand as valuation premiums remained attractive," she said.

Elsewhere in the emerging markets universe, "the generally strong sentiment continues, with Middle Eastern names circa 5 bps tighter today," the analyst said.

Some sellers emerged for bonds for most banks from Nigeria, a London-based trader said, with Diamond Bank plc bonds moving lower.

And the European markets remained "range-bound, as investors await the European Central Bank decision next week," according to a report from Barclays.

The Markit iTraxx Crossover index spread widened two bps to 259 bps on Friday.

"End of a very busy month, a stellar performance by the market," the London trader said.

Middle East in focus

The recent issue of notes from the United Arab Emirates' Global Education Management Systems Ltd. - 12% perpetual notes that priced at par - traded Friday at 114 bid, 115 offered, a trader said.

"Small deal and lacking focus and traction, even though the underlying education theme remains firmly in place," he said.

Dubai-based Jebel Ali Free Zone's (Jafza) 7% notes due 2019 traded Friday at 115.31 bid, 115.81 offered after pricing at par.

"A little wider on the month, but a high dollar price," he said.

And Kuwait Projects Co.'s (Kipco) 4.8% notes due 2019 that priced at par were spotted at 105¼ bid, 106¼ offered.

Dolphin lags

Lagging on Friday was the 2019 issue of notes from Dolphin Energy, a trader said.

"I can't quite work out why, but it feels well-offered and totally forgotten," he said.

Meanwhile, National Bank of Abu Dhabi's bonds have outperformed so far this month.

"The entire curve - very solid buying," he said. "Qatar National Bank is the same story. There's not enough paper out there for the demand."

Bahrain's sovereign bonds have moved higher and tighter, he said.

"The 2022s and 2023s in Bahrain are the best part of 35 bps to 40 bps better on the month," he said. "Lebanon has had a solid month too."

Inbursa sells notes

On Thursday, Mexico's Banco Inbursa, SA, Institucion de Banca Múltiple, Grupo Financiero Inbursa (Banco Inbursa) sold $1 billion 4 1/8% notes due June 6, 2024 at 98.686 to yield Treasuries plus 185 bps, a market source said.

The notes were initially talked at a spread in the 200 bps area.

Credit Suisse, BofA Merrill Lynch and Citigroup were the bookrunners for the Rule 144A and Regulation S deal.

The issuer is a banking company based in Mexico City.

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