Emerging markets improve; new Korea Hydro, Bahrain paper mixed; category holds inflow streak

By Aaron Hochman-Zimmerman

New York, June 11 - Emerging markets had a mildly positive day on Thursday despite patches of weaker levels.

The new bonds from Korea Hydro & Nuclear Power Co. Ltd. were lower, but the Central Bank of Bahrain bonds improved slightly.

Still, the primary market seemed as though it would close the spigot in the coming days with only Brazil's Banco Cruzeiro do Sul expected.

However, a rumor of Russia's return intrigued some in the market.

New reports of inflows also helped to keep the market tone strong.

"Emerging markets bond funds also managed to extend their winning streak, the longest since [third-quarter 2007], as investors committed another $102 million despite Latvia's woe and the 'haircut' Ecuador has imposed on holders of its sovereign debt," EPFR Global said in a statement.

Hard currency bond funds outpaced the local currency funds, the statement said.

From the major markets, equities were slightly improved as volatility stepped lower by just 0.35 to finish the session at 28.11, according to the VIX index. The index is a common measure of market volatility.

As a sector, emerging markets widened by 4 basis points to a spread of 412 bps, according to JPMorgan's EMBI+ index. The EMBI+ calculates the amount of extra yield investors will demand to hold assets in emerging market debt.

The EMBI global diversified index, which represents sovereigns and quasi-sovereigns, was wider by 6 bps with a spread of 430 bps.

The diversified index has a less strict liquidity rule for inclusion.

Emerging Europe continues quietly

On Thursday, emerging Europe went through nearly "a repeat of what's been going on the last few sessions," a London-based trader said.

The market felt stable, tighter and quiet, he said, with "not a whole lot going on out there."

"It's been mixed from customers, really," but the benchmarks in Russia and Turkey were both better.

In the primary, "Russia might be back soon," a syndicate official said, following the Russian Agricultural Bank issue, he said.

Also, "there are some issuers on the soft forward calendar in the Gulf," he said.

In Ukraine, president Viktor Yushchenko said that penalties owed to Russia for delinquent payments for gas shipments may irreparably damage the Ukrainian national oil firm NJSC Naftogaz Ukrainy.

Yushchenko said that arrangements made between prime ministers Yulia Timoshenko and Vladimir Putin are one sided and dangerous for Ukraine.

"These political manipulations will last for years unless we revise the conditions ... And the conclusion will be the loss of the transit system by Ukraine," he said.

"This is the most dangerous thing in these arrangements; Ukraine has in fact lost the prospect of state control over gas transport system," he said.

Still, Ukraine's bonds have been stable at high levels, the trader said.

"The market's just used to the politicking out there," he said.

The Ukrainian bonds due 2016 were unchanged at 67 bid, 69 offered.

The Russian bonds due 2030 were better by 3/8 point to 99½ bid, 99 5/8 offered.

Also in emerging Europe, Turkey's prime minister Recep Tayyip Erdogan supported the faction in government which is shying away from a deal with the International Monetary Fund.

"We are not obliged to a deal. Will we die if we do not have the IMF? If need be, we can tell them that the deal is not going to happen. Turkey has that strength," he said on Turkish television, according to the Hurriyet Daily News.

"I haven't seen any new news about the IMF," the trader said, but "the market seems to be saying 'you're fine,'" to Turkey, he said.

The CDS spreads are near their tights at 255 bps bid, 260 bps offered.

Even if Turkey does not take IMF money in the near term, "the downside is going to be fairly limited," he said.

If the economy falters without it, the IMF will return to fix the problems, he said.

The Turkish sovereign bonds due 2030 were quoted at 151½ bid, 152 offered.

Meanwhile, the new sukuk due 2014 from Central Bank of Bahrain has traded slightly better around 100½ bid, 101 offered.

Also, Lithuania is expected to sell a euro-denominated global bond via Citigroup and Credit Suisse.

LatAm up with high betas

Latin America has been "strangely quiet" in the primary, a syndicate official said.

However, many are still expecting a two-year deal from Banco Cruzeiro do Sul in the coming week.

Meanwhile, at the trading desks the high betas continued to climb.

In Argentina, "I guess everyone thinks the swap is going to go through," a strategist said, as the 8.28% Argentine discount bonds due 2033 were seen better by 2 points at 50 bid, 50½ offered.

The market seems to be pricing in an extension on the possible default of the 2012 call, the strategist said.

The fair value for the paper is 46 bid, he said.

Also, the province of Buenos Aires plans to issue 3.17 billion pesos in international bonds during the second half of the year, reports said.

The proceeds will be used to cleanse waterways as well as for infrastructure investments in ports and roads.

For high-beta Venezuela, oil prices jumped over $72 per barrel on Thursday while the 9¼% Venezuelan government bonds due 2027 tacked on 3¼ points to 73 1/8 bid.

The sovereign has been strongly outperforming the debt of the national oil firm PDVSA, but aside from the opacity of the oil firm, the lower coupons make the PDVSA bonds less attractive, the strategist said.

Without a high coupon payment, Treasury yields have pulled accounts away from the oil firm bonds, he said.

The 5 3/8% PDVSA bonds due 2027 were better by 2 1/8 points at 44 7/8 bid.

Asia trades mixed

In Asia, trading was mixed as investors watched the performance of the new 6¼% bonds, which priced at 98.935 from Korea Hydro & Nuclear Power.

The bonds fell just 1/8 point to 98¾ bid, which "is not that bad, but it's down rather than up," a strategist said.

The "Korean deal was too tight and was sloppy in secondary," a syndicate official said.

"The market has probably seen enough of Korea for the time being, but there are other banks and sov-related entities that will be coming this year," he added.

In the Philippines, foreign portfolio investments soared to $498 million in inflows in May from $276 million in outflows in April.

"Investors exhibited confidence in the economy as evidenced by a substantial Japanese investment in the country's food, beverage and tobacco sector," said bank governor Amando Tetangco in a statement.

Meanwhile, "on the global front, confidence in the world economy rose for the third month in a row as job losses in the U.S. continued to slow down and global production improved, reinforcing the growing perception that the crisis is bottoming out," he said.

Year-to-date inflows stand at $276 million, the bank said, compared to $461 million at this point in 2008.

The Philippine sovereign bonds due 2030 added ½ point to 123 bid, 125 offered.

Also in Indonesia, the bonds due 2019 were lower by ¾ point to 124¾ bid, 126¾ offered.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.