Morning Commentary: EM opens weaker on Deutsche Bank news; new South Africa bonds suffer

By Christine Van Dusen

Atlanta, Sept. 30 – Emerging markets assets struggled on Friday morning, with the new notes from South Africa suffering amid negative news about Deutsche Bank.

“We’re off to a weaker start into the day as concerns on Deutsche Bank are mounting after a dozen hedge funds announced that they have moved some of their exposure out of the German lender,” a London-based analyst said. “Its stock has tumbled by 17% since mid-September, when it emerged that the bank might have to pay as much as $14 billion to settle an investigation on the sale of residential mortgage-backed securities.”

On this weaker sentiment, U.S. Treasuries retreated and oil prices gave up some of their gains, he said.

“EM currencies and credit are also starting on the weaker foot,” he said.

Indeed, the new issue of notes from South Africa was “feeling the pinch,” he said.

The sovereign on Thursday priced a $3 billion issue of notes due 2028 and 2046, according to an informed source.

The deal included $2 billion notes due 2028 that priced at par to yield 4.3%, following talk in the 4 5/8% area. On Friday the notes were spotted at 98 bid, 98.75 offered.

The $1 billion notes due in 12 years priced at par to yield 5%, following talk in the 5 3/8% area. On Friday the notes were trading at 99.375 bid, 100.125 offered.

Barclays Bank, HSBC, JPMorgan and Nedbank were the bookrunners for the deal, which priced concurrently with a tender offer.

The proceeds will be used for general purposes of the government, including financial investment and the refinancing, repurchase or retiring of domestic and external debt. A portion of the proceeds will also be used for liability management transactions, including the payment of the purchase price for the old notes.

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