Emerging markets trading traces euro performance; Ukraine, Nonghyup designate bookrunners

By Christine Van Dusen

Atlanta, May 18 - Skepticism about the current efforts to cure the European economic crisis and stop the contagion led emerging market investors on Tuesday to avoid risk and issuers to remain in wait-and-see mode, holding off on deals until the climate improves.

Trading mirrored the euro, showing strength for some of the day and then finishing "weaker," a London-based trader said. "If you look at the chart of the euro and dollar, that will tell you everything you need to know. From 7 a.m. or 8 a.m. the euro rallied; then near the end of the day it started to dip lower. And that's how it's been for everything in my world."

The euro traded as high as $1.2444 early Tuesday on news that the European Union loaned Greece €14.5 billion so the financially troubled sovereign could pay down some debt that's due. But skepticism crept back in as the day went on. That sent the euro down to $1.2368 versus Monday afternoon's $1.2384, a market source said. In turn, yields fell to near-record lows.

"We're very much at this point dependent on the different gyrations coming off the euro," said Enrique Alvarez, debt strategist with think tank IDEAglobal. "There's a wait-and-see attitude."

The JPMorgan Emerging Markets Bond Index Plus was trading at 511.37, up 0.02% on the day with the spread wider by 3 basis points.

Trading weaker

"Today was a very weak session," a New York-based trader said. "Risk aversion was the theme of the day. We saw some sovereigns, like Indonesia and the Philippines, trade down by half a point."

Mirroring the euro moves, "Russia was strong in the morning and weaker in the afternoon, as was Gazprom," the London trader said. "Liquidity is extremely poor for the corporate world. It's exactly the same pattern, but different degrees."

Venezuela - which could issue bonds later this year - saw returns that were "off about 0.6%, but overall that credit has been trading on a very weakened basis over the course the last few weeks," Alvarez said. "That has nothing to do with the overall dynamic affecting the category, but the internal story of the government takeover of the parallel exchange rate market. That's creating a threat of higher inflation."

Argentina was "pretty flat, at 70½ bid on the discount '33 bonds," he said. "They have not fully recovered from the Greece overflow into the EM universe."

That price "isn't overly optimistic," he said. "But it doesn't say anything is drastically wrong. It's midrange and holding, and we're waiting to see the next shoe to drop."

Market awaits Argentina bonds

In the meantime, the market is waiting for the sovereign to issue its planned $1 billion 8¾% global bonds due 2017, which are part of Argentina's debt-restructuring plan.

Some sources say the bonds could price this week, but others believe the sovereign will hold off and "float the bonds when the market conditions are ripe," Alvarez said.

"Obviously that's not the case at this point in time," he said. "They want to pay single-digit rates, and that's not a possibility here. They're not going to get demand for the bond if they try that. It wouldn't work after being out of the market for nearly a decade.

"So what needs to occur here is for Argentina to refrain and hold back and wait for a better time. More than anything we're looking to see signs of defined participation interest in the swap."

Primary still cold

The new issue front on Tuesday was barren, the London-based trader said. "There are no new deals," he said. "It's a bit tedious."

He was keeping tabs on a planned issue of notes from the Ukraine, for which the sovereign tapped JPMorgan, VTB and Morgan Stanley as bookrunners. "But that's not until next month," he said.

And South Korea's Nonghyup, or National Agricultural Cooperative Federation, mandated Citigroup, Credit Agricole CIB, RBS, Morgan Stanley and ING for an upcoming issue of dollar-denominated benchmark bonds.

No other details on the deal were available on Tuesday.

Nonghyup is an agricultural cooperative banking organization based in Seoul.

"They came out at $300 million last year and did OK," the New York-based trader said. "It was too small a deal for most dealers to participate in. Maybe if they do $500 million this time they'll get more participation and interest. But if they do a small $300 million again, then we're going to see liquidity when it breaks and then it will just taper off."

Latin America quiet

Latin America, formerly a hotbed for new issuance, remained cold on Tuesday, too.

"I think the market is affected by a lot of countercurrents here," Alvarez said. "In general you would have the notion or perception that risk tolerance should be improving, at least on the margin, as Europe starts coming off the headlines.

"However you still have a lot of event risk out of Europe. It's very uncertain, all the different steps they need to take in order to finalize their commitment to the support package they announced a few days back."

Latin America, he said, "remains somewhat subject to that news headline risk."

© 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.