Morning Commentary: EM keeps strong tone; Lat-Am slows down; Turkey outperforms; Pakistan well-bid

By Christine Van Dusen

Atlanta, March 21 – Emerging markets assets remained strong on Monday morning, even with Japan out on holiday and the United States looking ahead to the Easter weekend.

“The market continues to be strong in this short week, as flows from the last month of buying are leaving dealers searching for paper,” a trader said. “Flow remains very strong, with a decent skew toward better buying across the board.”

Trading of Latin American bonds was slow on Monday morning, with the market “looking for conviction to grind higher,” a New York-based trader said.

“So far, bids seem just as strong, if not stronger” than on Friday, he said. “Interesting to note is the few inquiries so far have been client sells, and mixed inquiries in [Colombia’s Ecopetrol SA], a few institutional sellers and one buyer.”

He also saw some institutional sellers of Mexico-based Cemex SAB de CV's bonds.

“Will keep a close eye on the beginning of a trend here, after such a strong and continuous run higher,” he said. “We also did see more selling on Friday than previous sessions, although overall there was still better buying.”

Bonds from Turkey were very strong, even after the blasts in Ankara, another trader said.

“Good demand across the curve, and fast money is squeezing up the long end of the curve,” he said.

Turkish banks were also trading well on Monday, he said.

“I think the [Akbank TAS] curve has richened a bit too much here versus peers,” he said. “Corporates have now started to perform and present an asymmetric risk and reward opportunity versus bank paper, in my view. And the tighter we get in banks, the probability of an opportunistic senior deal increases, especially with five-year bank bonds nearly trading inside 5%.”

Isbank sees selling

Turkey’s Turkiye Is Bankasi AS (Isbank) remained in focus following news that a prosecutor will seek a sentence of between 8˝ and 24˝ years in prison for the company’s chairman if he is convicted of fuel smuggling.

In response to that, and “some negative rhetoric of taking the bank public,” a seller was seen, a trader said.

Azerbaijan, South Africa eyed

Bonds from Azerbaijan and South Africa were trading “OK” as buyers continued to surface, another trader said.

The new issue from Azerbaijan’s Southern Gas Corridor CJSC – $1 billion 6 7/8% notes due 2026 that priced at 99.112 to yield 7%, or Treasuries plus 509.7 bps – moved up to 100 on Friday and was fairly active on Monday, he said.

Citigroup, JPMorgan and UniCredit were the bookrunners for the Rule 144A and Regulation S deal.

“We think it looks cheap here versus other oil credits,” he said.

Pakistan in focus

Looking to Pakistan, the sovereign's 2019s remain well-bid, but buyers are “becoming price-sensitive,” he said.

“Pakistan's 2016s mature at the end of the month,” he said. “That may force some more buying up the curve, but it will most probably be small, as locals seem to have already done most of that trade now.”

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