Investors await U.S. election, ponder outcomes; Turkey narrows; Saudi Arabia 10-years bid

By Christine Van Dusen

Atlanta, Nov. 7 – Emerging markets debt saw some trading activity on a Monday that saw investors awaiting election day in the United States – and pondering the effect it will have on the asset class.

“We saw improving market sentiment over the weekend on the FBI’s decision to clear Hillary Clinton from any potential criminal charges,” a London-based analyst said. “That said, flow is likely more muted ahead of tomorrow’s elections, which pose somewhat of an uncertain outcome.”

A Clinton win “could boost EM asset prices and tighten credit spreads further, which would outweigh the U.S. dollar strength in the short term,” he said. “A Trump win would raise uncertainties, given his rhetoric on global trade and immigration.”

If Clinton wins, emerging markets debt – particularly from Turkey – could see a relief rally, he said.

“We think that Turkey risk, last week’s underperformer among the larger EM sovereigns, could benefit notably from such a scenario,” he said. “Recent headlines have been perceived as continuously negative, notably the potential move to a presidential system, the potential implementation of the death penalty and the ongoing purge. In latest move, the pro-Kurdish HDP party announced a halt of its parliamentary work following the arrest of senior party leaders over the weekend.”

The widening of Turkey’s bank and corporate bonds “implies that this has been largely priced in, while short-term drivers appear to be positive,” he said.

In trading from the Middle East, the new, $17.5-billion megadeal from Saudi Arabia saw some pockets of activity on Monday, a trader said.

Saudi Arabia trades

Saudi Arabia priced $5.5 billion 2 3/8% notes due in 2021 at 99.007 to yield 2.588%, or Treasuries plus 135 basis points. The $5.5 billion 3¼% notes due in 2026 priced at 98.679 to yield 3.407%, or Treasuries plus 165 bps.

And the $6.5 billion 4½% notes due in 2046 priced at 98.015 to yield 4.623%, or Treasuries plus 210 bps.

“The 10-years were bid at the expense of the 30-year again,” the trader said.

Oman, Equate in focus

Oman saw buyers and tightened 6 bps to 8 bps on the week while the new issue of notes from Kuwait-based Equate Petrochemical Co. KSCC – $2.25 billion of senior notes due in 2022 and 2026 – received some attention, the trader said.

Equate recently priced $1 billion 3% notes due 2022 at mid-swaps plus 195 bps and $1.25 billion 4¼% notes due 2026 at mid-swaps plus 270 bps.

The 2026s, which traded last week at 99, moved as high as 99.75 in the Street on Monday, the trader said.

Citigroup, HSBC, JPMorgan and NBK Capital were the global coordinators and joint bookrunners. Banca IMI, Mizuho Securities, MUFG and SMBC Nikko were also joint bookrunners.

Qatar tightens

Notes from Qatar tightened, with the 2046s moving in by as much as 9 bps on Monday.

And the recent $500 million 6 1/8% notes due 2026 that Jordan priced at 98.155 to yield 6 3/8% ticked “up to a touch below par,” the trader said.

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

Turkish bonds tighten into close

Taking another look at Turkey, most attractive Turkish bonds are those in the belly and long end of the sovereign curve, a trader said.

“Investors that move from Turkey’s 7% or Turkey’s 7½% 2019s to Turkey’s 7% 2020s could pick up 55 bps and 42 bps, respectively, on z-spread mid,” he said.

Turkey’s bonds closed on Monday about 3 bps to 4 bps tighter, another trader said.

“Cash was hit a few times, to stop us performing, as accounts didn’t really step in to buy yet,” he said. “Banks and corporates had mixed flow, slightly skewed towards selling.”

Poland prints notes

On Friday, Poland priced €250 million 0% notes due Nov. 7, 2018 at 100.12, according to a filing from the sovereign.

Barclays Capital was the bookrunner for the deal.

Other details were not immediately available on Monday.

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