New CAF seven-year notes trade in line with broader market; First Abu Dhabi still on hold

By Rebecca Melvin

New York, Feb. 7 – Corporacion Andina de Fomento’s newly price 1 1/8% notes traded mostly in line with the broader markets on Wednesday after the Latin American regional lender priced €1 billion of the seven-year notes during a turbulent session on Tuesday that followed the steep selloff in U.S. equities on Monday, a market source said.

The CAF deal priced well, with a yield spread of mid-swaps plus 40 basis points, and traded with a bid spread of about mid-swaps plus 38.5 bps. That was in line with the seven-year Treasury that had moved in by the same amount, the source said.

The market selloff when the deal was announced on Monday had initially been concentrated in equities before it trickled into the rate side. But despite the volatility, the deal was able to price well and maintain its spread given slightly less volatility in the euro compared to the dollar and because of investors’ willingness to sustain their exposure to the credit, the source said.

Also on Wednesday, there was still no word on First Abu Dhabi Bank, which postponed pricing of a dollar-denominated five-year sukuk on Tuesday due to market conditions.

But South Korea’s Daegu Bank Ltd. priced $300 million of 3¾% notes due 2023 on Wednesday to yield U.S. Treasuries plus 135 bps, and another lender, Credit Bank of Moscow, priced $500 million of 5.55% five-year notes at par. The order book for the Credit Bank deal was more than $1 billion.

In Latin America, Creditvalores-Crediservicios SAS launched a $75 million tap of its 9¾% notes due 2022 to yield 8¾%. The Bogota, Colombia-based consumer lender priced the initial $250 million of 2022 notes last July.

In addition, Gran Tierra Energy International Holdings Ltd. talked $300 million of seven-year notes in the high 6% area, with the seven non-call four notes expected to price on Thursday.

Other deals in the Latin America market include a dollar or local currency deal for the Dominican Republic, which one market source suggested would go well, and a deal for Camposol SA.

Wednesday’s session was positive overall if a bit choppy, but things began to weaken again into the close.

“There was a bit of a shakeout, but the fundamentals are still there, and that should allow for continuing, if cautious sentiment,” a New York-based market source said referring to Monday’s downdraft.

“While spreads are more idiosyncratic now, the 10-year Treasury is where it was on Monday, with maybe a difference of one or two basis points. In terms of rates that’s fine, some names are outperforming others, but overall the liquidity is still there, and investors are not fretting over holding exposure,” a market source said around mid-afternoon.

But U.S. Treasury rates were edging up again to $2.83% for the 10-year Treasury benchmark at the close, and U.S. equities closed at their lows of the session, with the S&P 500 stock index down 13.48 points, or 0.5%, at 2,681.66.

Changes in investor behavior are anticipated only at the margin, however, and a shift on the appetite for duration has already been detected, market sources said.

“Investors will be more picky now,” another market source said.

But some shifts in the primary market had started in January, a market source pointed out. Investors were not protesting the new-issue low yields, but there was evidence of some haggling. If there was no movement in price, then the issuer might not get as big of a deal as expected. Or if pricing was more generous, a bigger deal could be had, the source said.

A big pipeline remains but it would not be surprising to see more generous indicated pricing, the source said. “We might see higher yield or wider spread. We’ve not yet seen that, but it might be coming down the pike.”

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