Kuveyt Turk advances deal; weaker, illiquid session for EM; Colombia, Mexico fare better

By Christine Van Dusen

Atlanta, Feb. 8 – Emerging markets put in a weaker, lower and illiquid session on Monday as oil dipped and investors showed caution after the previous week’s weaker-than-expected payrolls numbers from the United States.

“It looks like we are set for another week of uncertainty as the market tries to digest what NFP really means for the U.S., going forward,” a trader said. “Is it a poor print, and means we should expect more weakness going forward? Or are we in the later stage of the cycle, where the labor market slack has tightened, pushing up wages, and combined with lower energy cost should be good for the consumer and housing?”

With this latest decline in oil prices, emerging markets assets are “more resilient,” a trader said. “So although they’re wider, I have not seen the continuous waves of sellers looking to exit, as we saw in January.”

Given the market’s current volatility, “I expect most of the risk-on trading to be channeled via primary issuance,” he said. “The big question still to be answered is: are they ready to issue?”

Latin American bonds were weaker, though some names were holding in, a New York-based trader said.

“Although we are seeing better selling, it is light and sporadic,” he said. “The majority of the corporate space is weaker.”

Banks from Colombia and Mexico didn’t trade too poorly, he said, but volumes for Brazil-based Petroleo Brasileiro SA were “unusually low.”

“The curve is down ½ point to ¾ points after Friday’s move lower,” he said. “And [Brazil-based Vale SA] is also giving up recent gains, even with iron stabilizing, as the market is realizing it’s going to be a long way back for Vale.”

Lat-Am in focus

At the end of the day, Brazil’s five-year credit default swaps spreads were seen at 484 bps from 471 bps after trading as wide as 487 bps, a trader said.

Mexico’s closed at 213 bps from 202 bps.

“Cash prices finish close to the lows of the day on thin volumes,” he said. “Latin American high yield finishes mixed.”

Venezuela’s 2027s closed at 38 from 38.50, while PDVSA’s 2017s finished at 42.25 from 42. Argentina’s Bonar 2024s closed at 108.30 from 107.60.

Flows on the quieter side today, with most prints seen on the Street rather than client side,” he said.

‘Painful’ Middle East session

Bonds from the Middle East had a “pretty painful session” on Monday, “with liquidity disappearing as the day went on,” a London-based trader said. “We tried to open stable with spreads unchanged, but quickly we pushed towards the wides, with the Street marking all curves wider.”

Most curves from the region were 10 bps to 15 bps wider, he said, while some in Africa were wider by as much as 100 bps.

“Cash prices are still not at the lows, but spreads are within touching distance now,” he said. “The only positive I am seeing for EM is the selling has not picked up yet, as accounts are better prepared running high cash levels.”

Asian quiet for holiday

Asian markets were quiet on Monday, given the holiday, a strategist said.

“Much of the focus will be therefore on Fed Chair Yellen’s testimony to the Congress on Wednesday and Thursday,” he said.

The non-farm payrolls figures released on Friday were on the soft side, but the jobless rate was better than expected, he said.

“A rate hike is yet little likely, as futures currently price in a 10% hike in March,” he said. “Fed Chair Yellen will likely leave all options on the table, but highlight the downside risks, in particular from the global economy.”

Kuveyt Turk sets talk

Turkey’s Kuveyt Turk Katilim Bankasi AS set initial talk in the 8% area for a dollar-denominated issue of Islamic bonds due in 10 years, a market source said.

KFH Capital, Dubai Islamic Bank, HSBC, Noor Bank, QInvest, Emirates NBD, Kamco and QInvest are the bookrunners for the Regulation S deal.

The company completed a roadshow in November, and at that time set the size for the deal at $400 million.

“Markets have turned into risk-off mode, and therefore [we] expect room for further tightening below the 8% threshold as unlikely,” a strategist said. “Moreover, the initial investor base will be mainly restricted to the [Middle East and North Africa], given that parts of Asia are on holidays and the transaction is Regulation S only.”

He said he expected the size to be between $250 million and $400 million, and that a yield in the low-8% area was “fair.”

“We do not see much room for further outperformance at this point, given the current state of the market and the relatively small investor base,” he said.

© 2015 Prospect News.
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