Oil prices, Ukraine news push EM bonds wider; liquidity stays thin; Philippines rallies

By Christine Van Dusen

Atlanta, Dec. 11 – Emerging markets bonds were relatively quiet on Thursday morning as plummeting oil prices and news from Ukraine pushed most credit default swaps spreads wider.

“Oil prices declined further yesterday, following comments from Saudi oil minister Ali al-Naimi,” a London-based analyst said.

Russian credit default swaps spreads widened by about 4 basis points on Thursday morning, the London analyst said.

“Cash spreads are a little wider on the Treasury move, with 10-year yields falling to 2.15%,” he said.

But buyers of corporate paper from Russia were coming in slowly, he said.

Also from Russia, investors were watching OAO Rosneft, which will start issuing about RUB 625 billion of bonds, he said.

“It remains a little unclear as to whether the state will purchase these bonds, but a successful deal would be very beneficial in allowing the company to deal with the significant upcoming debt maturities,” he said.

In news from Ukraine, the sovereign says it needs more money as part of its $17 billion bailout program and is calling for a conference of international donors to help Ukraine avoid a default. Also this week, a truce between Ukrainian soldiers and pro-Russia separatists was broken.

“The lack of information and fears about more adverse scenarios are keeping sentiment at extremely bearish levels,” said Svitlana Rusakova of Dragon Capital. “The market is keenly waiting for any hints regarding financing Ukraine’s funding gap and whether that will include a sovereign restructuring.”

Looking to Turkey, bank bonds were lower but sovereign credit default swaps spreads were 3 bps tighter, the analyst said.

“We are still positive on Turkey, noting that the continued decline in oil prices should benefit the country,” he said.

Risk-off for Asia

From Asia, credits followed the global risk-off tone and opened between 3 bps and 5 bps wider, a London-based trader said.

“Liquidity was very thin, with dealers refraining to take down risk,” he said. “We are closing at the wides.”

Oil-related companies finished Asia’s Thursday session up to 5 bps wider, while technology companies widened by about 3 bps.

“Korea is holding in better with onshore buyers in the long end,” another London trader said. “It closed 3 bps to 5 bps wider.”

Philippines performs

Bonds from Malaysia, the trader said, were 5 bps wider on the move in oil prices.

Property bonds from China closed 1/8 point to ½ point lower.

“The focus was in the high-yield sovereigns, with Philippines upgraded to Baa2 by Moody’s,” he said. “That had local banks buying, which drove the curve up a ½ point higher.”

Indonesia tried to join the rally but couldn’t, and its 2044s traded at a low of 124.65 before closing at 125 bid, 125½ offered, he said.

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