EM spreads end week tighter; Nigeria to issue notes in June; bond fund inflows increase

By Christine Van Dusen

Atlanta, May 10 - Spreads tightened for emerging markets assets on Friday as Commercial Bank of Dubai PSC (CBD) readied its new deal, Nigeria announced plans for notes and bonds from Russia and Turkey narrowed.

The Markit iTraxx SovX CEEME ex-EU index spread on Friday tightened 4 basis points to 172 bps over Treasuries while the corporate index spread - seen Thursday at 213 bps over Treasuries - moved to 211 bps.

"US Treasuries are selling off this morning on the back of a good Asian session in equities and the sell-off of the yen," a London-based analyst said. "Spreads are obviously tighter on a day like this."

Russia's sovereign bonds were 4 bps tighter, while corporates narrowed as much as 3 bps.

"The Turkey sovereign is also 1 bp to 2 bps tighter on the Treasury move," she said.

Bonds from the Middle East and North Africa had a quiet morning on Friday, a trader said.

"Some lower cash prices, given the move in rates," she said. "Seen some retail investor activity in bank names and small buying of perpetuals."

She is keeping her eye out for the upcoming issue of Regulation S dollar-denominated notes from Commercial Bank of Dubai via bookrunners Citigroup, HSBC and National Bank of Abu Dhabi.

"Commercial Bank of Dubai is next up, supply-wise," she said.

Market sources were whispering about Kazakhstan, which is in the process of selecting bookrunners for its issue of up to $1 billion of notes this year.

Market sources were also talking about a possible issue of local-currency notes ahead for Turkey's Turkiye Vakiflar Bankasi TAO (Vakifbank), which last month priced $600 million of 3¾% notes due 2018 at 99.432 to yield mid-swaps plus 300 bps.

Nigeria plans bonds

Meanwhile, Nigeria is looking to issue $1 billion of notes in June to fund power projects.

The sovereign's existing 2021 notes were sighted Friday at 116¾ bid, 118 offered after Thursday's levels of 117 bid, 118 offered.

Also from Nigeria, Fidelity Bank plc's recent $300 million issue of 6 7/8% notes due 2018 that priced at 99.48 moved to 99.18 bid, 99.68 offered on Friday.

Citigroup and Deutsche Bank are the bookrunners for the Rule 144A and Regulation S deal.

Egypt trades flat

In other trading from Africa, Egypt's 2020 notes that traded Thursday at 90.62 bid, 93.62 were unchanged on Friday.

South Africa's 2024s - seen Thursday at 111½ bid, 112½ offered - were quoted Friday at 110¼ bid, 111¼ offered.

Brazil provides details

Brazil released further details on the $750 million add-on to its existing 2 5/8% notes due 2023.

The notes priced Thursday at 98.946 to yield 2¾%, following talk of a yield of 2.8% to 2.85%.

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

The original issue of $1.35 billion notes priced on Sept. 12, 2012.

Venezuela could issue notes

Venezuela was in focus on Friday as the sovereign released inflation numbers for April that showed the biggest month-over-month increase in two years.

"This, plus scarcity is putting pressure on the government to take economic action," according to a report from RBC Capital Markets. "Bond issuance could become a temptation to try to increase the supply of dollars rapidly."

But to make such a decision hastily would be a negative signal, the report said.

"It would show less commitment to the economic adjustment expected by the market," RBC said. "Instead, the level of indebtedness would continue to rise, already on an unsustainable trend."

There is a risk of returning to the format of open issuances of dollar-denominated bonds sold in Venezuelan bolivars.

"Usually in this type of issuance, after obtaining the bonds in the primary market, the locals immediately turn to international markets to sell the bonds and obtain dollars, which puts pressure on the secondary market," RBC said. "For the government, the effectiveness of this measure could be limited. In general, bond issuances have mainly served as an alternative for capital flight rather than a source of funding for imports."

Inflows rise

In other news, emerging markets bond funds saw inflows of $1.91 billion for the week ended May 8, up from $1.69 billion in the previous week, according to a report from data-tracker EPFR Global.

About $1.1 billion went into funds with local-currency mandates.

Year-to-date, emerging markets hard-currency funds have seen $3.5 billion in inflows, said Irina Skrylev, associate strategist at RBC Capital Markets.

"Foreign investor interest in local EM assets picked up in April, which is consistent with improving global liquidity conditions," she said. "Foreigners' purchases of bonds in Mexico, Korea, Indonesia, Thailand and Turkey were the largest contributor to this rally."

Foreign investors' net purchases of EM assets likely remain at the pace of more than $5 billion per week, she said.

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