EM prices ‘whipped around’ by Treasury volatility; India closes firm; Turkey bonds weaker

By Christine Van Dusen

Atlanta, Aug. 19 – Asian bonds were softer and Latin American notes widened on Wednesday as a sell-off in risky assets and commodities intensified, equity markets remained volatile and the Federal Reserve appeared close to instituting a rate hike.

“Cash prices get whipped around by Treasury volatility, pre- and post-Fed release and finish lower on the day,” a New York-based trader said.

The tone for Asian credits was “cautious” as the Shanghai composite remained volatile, trading down 5% and then recovering to close the early session up 1%, a London-based trader said.

“Investment-grade cash managed to hold in broadly unchanged while credit default swaps underperformed, moving 3 basis points to 10 bps wider.”

Bonds from Korea moved a couple of basis points wider, he said.

“India closed firm, with Icici Bank Ltd.’s 3 1/8% 2020 trading down at 161 bps,” he said. “Thailand cash was unchanged.”

At the end of the New York session, China corporate bonds were wider or narrower by about 2 bps with very light flow, another trader said.

“The market feels directionless,” he said.

Looking to Turkey, sovereign bonds were weaker after the central bank decided to keep rates unchanged, a trader said.

“We continue to see interest in five-year Turkey banks and corporates at the tights to the sovereign,” he said. “[Akbank TAS]’s 2025 felt heavy, as it’s probably the one bond the Street is long of against the shortened bank paper they are short of.”

Peru bonds trade higher

The new issue of notes from Peru – $1.25 billion 4 1/8% notes due 2027 that priced Tuesday at 99.766 to yield 4.15%, or Treasuries plus 195 bps – traded between 100.125 and 100.625 on Wednesday morning, a New York-based trader said.

Citigroup and JPMorgan were the bookrunners for the Securities and Exchange Commission-registered deal.

Later in the day, the notes were spotted at 100.20.

In other trading, South Africa-based Eskom Holdings SOC Ltd.’s curve is now 100 bps wider on the month, another trader said.

Lat-Am widens

At the close on Wednesday, low-beta spreads from Latin America were wider on the day, a New York-based trader said.

Five-year credit default swaps spreads moved to 322 bps from 312 bps while Mexico’s shifted to 147 bps from 142 bps.

Venezuela’s bonds moved slightly higher, even amid weakness for crude, and Argentina moved lower, he said.

“Flows did pick up today, with increased volume, as we saw better sellers consistently throughout the session,” he said.

Ukraine bonds don’t budge

From Ukraine, trading was quiet with low volumes and mostly unchanged prices, said Fyodor Bagnenko, a fixed-income trader from Dragon Capital.

“Some positive industrial production data and ominous articles about a potential escalation in the East were not enough to move the market either way,” he said.

Burgan Bank in focus

Market-watchers were also paying attention to Kuwait-based Burgan Bank SAK, which on Tuesday morning received approval from the central bank to redeem its 7 7/8% notes due in 2020 with $400 million outstanding.

“The bonds subsequently dropped substantially,” a trader said.

There is a lot of uncertainty surrounding the possibility of following through with the redemption, he said.

“The bank has actually so far only received the approval to redeem the bonds, but has made no further statement to a redemption,” he said. “We assume that Burgan Bank will go forward and redeem the bonds.”

Shareholders could benefit from the bonds’ redemption, he said, given the high coupon.

“We think that Burgan Bank is currently evaluating whether to call the bonds,” he said. “Given the 30 day notice period, it still has time until end-August if it wanted to do so. It would however not be unheard of if the bank will pay more or choose to buy back the bonds in order to appease investors.”

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