Confusion reigns amid focus on E.U. summit; volumes thin but demand rises for risky assets

By Christine Van Dusen

Atlanta, Oct. 26 - As the markets closely watched Wednesday's meeting of European Union leaders and wondered what steps would be taken to alleviate the current financial crisis, emerging markets bond investors - those who weren't sitting on the sidelines - engaged in widespread buying of risky assets.

"The cacophony of voices, shifting timelines and complexity of the problem lead us to remain cautious on the euro and risky assets until more about the next steps is known," according to a report from Barclays Capital Markets. "However ... the broader financial backdrop for risk assets has been steadily improving. The combination of economic momentum, positioning and sentiment could potentially limit the downside for risk assets."

Indeed, one London-based trader called demand for risky assets "relentless" on Wednesday morning.

"I'll take my direction from the relentless retail investor demand," he said. "Street prices have opened wider than usual today, but bids are just ¼ lower from yesterday's close. I've used the strength to lighten up a little, and I suspect most other dealers are staying close to home and light on inventory. Hence, we can still perform and squeeze higher in very thin markets."

By afternoon, trading activity was muted.

"After a round of retail buying on the open, it's eerily quiet both in our market and across the trading floor," another trader said. "It's been quiet but the tone is constructive, with spreads for the most part doing well."

In deal-related news, Russian Standard Capital plc set talk for a dollar-denominated offering of notes, Russia-based Gazprombank OJSC mandated bookrunners for a roadshow and the Republic of Panama sold an add-on to existing 7 1/8% notes due 2026 on behalf of Fondo Fiduciario para el Desarrollo.

Turkish banks supported

On Wednesday morning, Turkey's sovereign bonds opened mostly unchanged while corporate demand remained strong, a trader said.

Turkish banks continued to find support as the lira put in a solid performance.

"Names like Akbank and Garanti Bankasi AS are now 100 bps tighter," a trader said.

Another trader noted buying of Garanti's 2021s.

And Yuksel Insaat AS continued to perform well, despite the recent outlook downgrade from Moody's Investors Service.

Middle East in focus

Looking to the Middle East, Dubai's DP World saw its 2017s catch a good bid, closing with a 102 handle on Wednesday.

And Dubai Water and Electricity Authority's 2015s moved higher.

"They're now 6 points off the lows of three weeks ago," a trader said.

Good demand was sighted for Mubadala, the Qatar sovereign and Ras-al Khaimah throughout the day.

"Qatar's 2040s are trading at 124.75, 35 better over the month now," he said. "In fact, most of Qatar is bouncing back very nicely from the lows. That credit, time and time again, proves a classic buy-on-dip name."

Bids were seen for some other names on Wednesday, including Kuwait's Kipco and Dar al-Arkan. "That's as expected, really, after the market stability of the past two to three weeks," a trader said.

IPIC stabilizes

In other news from the Middle East, Abu Dhabi's International Petroleum Investment Co.'s 2020s, 2021s and 2026s were stabilizing, a trader said.

"The bonds are unchanged on the week, with the 2021s closing at 100.25 bid, 100.5 offered, up almost 4 points in three weeks," he said.

Said another trader, "The secondary curve has seen good demand, with even the sterling 2026s trading up."

This came as IPIC's roadshow for an issue of notes - via Barclays Capital, JPMorgan, Mitsubishi UFJ Securities, Natixis and Societe Generale - was on its last day.

"I sense there are plenty of other issuers tracking the progress of any deal, and the window is getting smaller for issuance, given it's November next week and we have some United Arab Emirates' holidays and Thanksgiving later in the month," a trader said.

Russian Standard sets talk

In deal-related news, Russian Standard Capital set talk for its planned dollar-denominated issue of six-month notes at 8¾% to 9%, a market source said.

UBS and VTB Capital are the bookrunners for the Regulation S deal.

Proceeds will be used for general corporate purposes.

The European Commercial paper issue is guaranteed by Russian Standard Bank, a private consumer lender.

Gazprombank taps leads

Also from the Russian banking sector, lender Gazprombank has mandated Barclays Capital, UBS and Gazprombank to arrange a roadshow in Switzerland, a market source said.

The marketing trip will be held from Nov. 2 to Nov. 4.

And in other news, Panama sold an $89.5 million add-on to its existing 7 1/8% notes due Jan. 29, 2026 at 126.35, according to a filing with the Securities and Exchange Commission. The notes were sold on behalf of Fondo Fiduciario para el Desarrollo.

Morgan Stanley is the bookrunner for the deal.

The original issue priced in 2005 and totaled $908 million.

Proceeds will be used for reinvestment in securities.

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