Ukraine fighting continues; leaders meet in Greece; Ivory Coast, Costa Rica prep bond deals

By Christine Van Dusen

Atlanta, Feb. 18 – Bonds from the Middle East and Asia managed to tighten on the sell-off in U.S. Treasuries, even as fighting continued in Ukraine and leaders continued to meet to discuss Greece’s bailout.

Media reports from Ukraine included some positive signs, a London-based analyst said. Luhansk rebels were reportedly pulling back heavy weapons while Kiev said it would withdraw weapons when a total ceasefire is observed.

“In Debaltseve, it appears the rebels have enjoyed some success, with reports that they had captured some 80% of the city,” he said. “This morning, we are seeing headlines that Ukrainian forces are pulling out of the city. That could well lead to a decrease in fighting, if it is true, given that fighting has largely been concentrated there, so some positive signs are coming out of the country.”

But this isn’t likely to lead to a lasting peace, he said, given that Kiev probably won’t give rebels enough power to satisfy them.

“We think it is more unlikely than not that Kiev will grant enough powers to the rebel regions to satisfy them and create a lasting peace,” he said.

Russia’s credit default swaps spreads reacted positively, tightening 5 basis points, while sovereign bonds narrowed between 5 bps and 7 bps, he said.

From Greece, leaders were expected to request an extension on the sovereign’s loan agreement instead of an extension on the bailout program, according to a report from Schildershoven Finance BV.

“The difference is whether the Greece continues to follow all its previous agreements on spending cuts, or only some of them,” the report said. “News that Greece is going to request a loan extension at least was welcomed by investors, as this step could ease a standoff with creditors over the country’s future financing.”

Middle Eastern bonds narrow

Perpetual notes from the Middle East were trading Wednesday about 40 bps tighter over the week, a London-based trader said.

“Spreads are generally performing into the rate sell-off,” he said.

Long-dated assets from the region also tightened, he said, with Bahrain’s 2044 dollar notes trading in “decent size” from 97¼ to 97.85 and closing 30 bps tighter on the week at 97.62 bid, 98.12 offered.

“High-yield names felt a bit more balanced,” he said. “Corporate supply is severely lacking still.”

First Gulf ticks up

Also from the Middle East, Abu Dhabi-based First Gulf Bank PJSC’s new 2 5/8% notes due 2020 that priced Tuesday at 99.549 to yield mid-swaps plus 100 bps was trading 5 cents above reoffer and about 5 bps to 6 bps tighter on Wednesday morning, a trader said.

“Trading activity this morning is mainly focused on the new deal,” he said.

Citigroup, Deutsche Bank, First Gulf Bank, HSBC and ING were the bookrunners for the Regulation S deal.

Other Middle Eastern bonds were slightly tighter on Wednesday morning, along with rates, he said.

Most other emerging markets were quiet on Wednesday, following Monday’s holiday in the United States and the Chinese New Year, he said.

Some Asian bonds tighten

High-grade bonds from Asia moved 1 bp to 3 bps tighter on Wednesday on the sell-off in U.S. Treasuries and the latest headlines from Greece, a trader said.

Better buyers were seen for names from China, Hong Kong and China’s Tencent Holdings Ltd.

“Korea is a couple basis points tighter,” he said. “India continued to squeeze, with spreads 2 bps to 5 bps tighter.”

Other Asian bonds mixed

Property companies from China were mostly unchanged to a ¼ point higher, the trader said, while high-yield sovereigns opened 1 point lower and 3 bps to 5 bps tighter on spread.

“Philippines’ 2040s traded down to the lows of 104 7/8 and rebounded, last up at 105 3/8,” he said. “Indonesia’s belly outperformed, unchanged to a ¼ point lower. The long end was down one point, with Indonesia’s 2045 last trading at 103 5/8.”

Cencosud in focus

The recent notes priced by Chile-based retail company Cencosud SA – a two-tranche issue of $1 billion notes due 2025 and 2045 – continued to see some action on Wednesday, a New York-based trader said.

The deal included 5.15% notes due in 2025 priced at 99.637 and 6 5/8% notes due in 2045 that priced at 99.909.

The 2045s moved a little bit lower on Wednesday and the 2025s saw “scant buyers,” he said, while the rest of the curve traded well.

HSBC and Scotiabank were the bookrunners for the Rule 144A and Regulation S deal.

Sovereigns plan issuance

Ivory Coast’s new issue of notes will be denominated in dollars, a market source said.

A roadshow is underway and will conclude on Feb. 25.

BNP Paribas, Citigroup and Deutsche Bank are the bookrunners for the deal.

And Costa Rica is looking to issue more than $1 billion of notes by the end of 2015, a market source said.

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