EM debt weaker on move up in rates; Romania prices dual tranches; new Colombia notes flat to lower

By Rebecca Melvin

New York, Oct. 4 – Emerging markets debt was weaker again on Thursday as U.S. Treasury yields moved up strongly for a second straight day, but the EM primary market remained active.

Debt prices were all lower, and spreads were “a mixed bag,” said a trader, who is focused on Middle East and Africa debt.

Longer dated, lower-beta names were the hardest hit in cash price terms, including South Africa, but Lebanon and Bahrain were well bid, the trader said.

The yield on benchmark 10-year Treasuries climbed to 3.20% as more U.S. economic data showed better-than-expected strength. The sell-off in Treasuries started on Wednesday, giving yields a 12 basis points boost, their largest one-day jump since November 2016.

But the emerging-markets primary market remained robust. Romania launched €1.75 billion of notes in two tranches, including 10- and 20-year notes. Final pricing and allocations were expected to be set late in the day, according to a syndicate source.

The €1.15 billion of 10-year notes priced with a yield spread of mid-swaps plus 195 basis points, which was tightened from guidance of mid-swaps plus 200 bps to 205 bps and initial talk of mid-swaps plus 210 bps to 215 bps.

The €600 million of 20-year notes priced with a yield of mid-swaps plus 270 bps, which was tight compared to guidance of mid-swaps plus 275 bps area and initial talk in the area of mid-swaps plus 280 bps.

Combined order books at the time of the launch was about €2.8 billion.

BNP Paribas (billing and delivery), Erste Group Bank, ING Bank, Societe Generale and Unicredit are bookrunners of the Regulation S notes.

In addition, African Export-Import Bank (Afreximbank) launched $500 million of five-year notes to yield mid-swaps plus 210 bps. The deal for the Cairo, Egypt-based international bank is one revived from May that was sabotaged by market weakness at that time.

In first-day trading, Colombia’s combined $2 billion in new 10-year notes and a tap of its 5% notes due 2045 were flat to lower.

Colombia’s new 4˝% notes were quoted at 98.90 bid, 99.10 offered after the sovereign priced $1.5 billion of the 2029 notes at 99.362.

A second source quoted them around 98.85 on the bid side, representing a yield of about 4.64%.

“So about 6 bps wider from pricing, I think,” the source said.

Colombia’s 5% notes were quoted at 97 bid, 97.5 offered after the sovereign priced another $500 million of the notes at 97.35 in that issue’s third add-on.

The Treasuries sell-off was attributed to data showing strength of the U.S. economy. Also this week, trade fears were subsiding after the United States, Mexico and Canada agreed to re-establishing a pact on trade, which will no longer be called the North American Free Trade Agreement.

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