Morning Commentary: Turkey, Ukraine weaken; Asian bonds firm amid thin liquidity; Icici eyed

By Christine Van Dusen

Atlanta, Aug. 6 – Emerging markets assets were mixed on Thursday morning, with some showing weakness as commodities slipped and rate volatility increased.

There was “some selling in the long end of curves,” a London-based trader said. “Bunds are widening and steepening aggressively.”

Sovereign bonds from Turkey were weak, with credit default swaps spreads better-bid on Thursday morning, another trader said.

“Turkish banks continue to print resilient numbers given the tougher economic conditions –another excuse for why they are trading tight versus the sovereign, as we continue to see a lack of any meaningful bid-hitting to push spreads wider in that space,” he said.

Bonds from Asia, meanwhile, started the session with a firm tone and gained momentum throughout the morning, another trader said.

High-grade cash bonds closed the Asian session 1 basis point to 4 bps tighter, with recent underperformers showing promise, he said.

“Liquidity was thin, but recent issues and the China oil space were in focus, with real-money demand and accounts short-covering,” he said.

The recent issue of 4¾% notes due in 10 years that China Minmetals Corp. priced at 99.858 to yield 4.768%, or Treasuries plus 245 bps, traded Thursday morning at 256 bps, then closed at 257 bps bid, 254 bps offered.

Deutsche Bank, HSBC, JPMorgan, ICBC and Citigroup were the bookrunners for the Regulation S deal.

“Korea firmed up, with the sector unchanged to 2 bps tighter,” he said. “India was broadly unchanged, with focus on the new Icici Bank Ltd.”

The issue of 3 1/8% notes due in 2020 priced at Treasuries plus 160 bps via HSBC, Barclays, JPMorgan, BofA Merrill Lynch and Standard Chartered in a Regulation S deal.

“The bond traded up at 154 bps at the break and was better-offered,” he said. The deal “had lukewarm demand in the secondary while we saw mostly flippers. Closed at 158 bps bid, 155 bps offered.”

In other trading, bonds from Ukraine have weakened so far this week after bondholders criticized the sovereign’s latest restructuring offer, said Fyodor Bagnenko, a fixed income trader with Dragon Capital.

“Not much actual selling, but rather bids pulling back lower,” he said. “Quasi-sovereigns closed lower for the first time in a while, in modest profit-taking.”

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