EM bonds widen on oil prices, Treasury rally; Kaisa gets downgraded; perpetuals in demand

By Christine Van Dusen

Atlanta, Jan. 5 – Emerging markets bonds were mostly wider on a somewhat slow Monday morning, effected by oil prices and the move in U.S. Treasuries.

Bonds from Turkey were among those that widened during the early session while notes from the Middle East and North Africa were “generally well-supported,” a London-based analyst said.

“We are seeing some good interest in Dubai and Bahrain names, while perpetuals are also trading well this morning,” he said.

High-grade bonds from Asia widened slightly on Monday, following a rally in U.S. Treasuries.

“The bulk of client activity was in the [Kaisa Group Holdings Ltd.] complex, with decent two-way flows initially, before better buying flows after lunch pushed the bonds higher by 6 or 7 points from the lows of the morning session,” a London-based trader said. “The only Street prints were Kaisa 2018s, up at 45 just before lunchtime, and Kaisa 2019s, up at 46½ in the afternoon.”

This came as Moody’s Investors Service downgraded Kaisa’s corporate family and senior unsecured debt ratings from B3 to Caa3 and Standard & Poor’s lowered its long-term corporate credit rating from BB- to Selective Default.

When Kaisa’s chairman resigned, it triggered a mandatory repayment of the company’s HK$400 million offshore loan on Dec. 31. Kaisa failed to repay it, Moody’s said, and now has a higher risk of default, which could trigger a cross-default on its offshore bonds.

The company’s 10¼% 2020s were trading Monday between 40 and 41, another trader said, and a buyer was spotted for Kaisa’s 2018s.

“Trading more Kaisa 10¼% 2020,” he said. “Seven points higher from today’s low print.”

Property companies move lower

Most other high-yield property corporates from Asia were about ½ point to 1 point lower, a trader said.

“High-yield sovereigns were the outperformers, higher by a ½ point to 1 point, with Indonesia’s 2044s up from 124¼ to 124 5/8,” he said.

The 2034 bond from the Philippines was up at 135¼, versus 135, while its 2030s were seen at 163¾ on Monday after trading at 164 1/8.

“It was a quiet start to the new year, with some market participants still getting their bearings after the year end holidays,” the trader said.

Middle East choppy

Taking a closer look at the Middle East, trading was choppy on Monday, a London-based trader said.

“We saw demand for perpetuals, Dubai names and Bahrain sovereign paper,” he said. “The market paused mid-morning before a real mixed bag and heavier afternoon session as oil and commodities took a leg lower.”

Bonds from Africa traded poorly during the session, he said.

Russian bonds stabilize

Meanwhile, bonds from Russia stabilized somewhat on Monday, following the “exceptional volatility of mid-December,” a London-based analyst said.

“But credit default swaps have risen in the last few days,” he said. “This morning, Russia credit default swaps are circa 10 basis points wider, affected by oil prices.”

On a positive note, officials from Russia, Ukraine and some European countries on Monday were expected to meet to discuss a peace settlement, he said.

“Over the holiday season, we also saw the Russian government step in to help various banks and corporates,” he said. “Russia itself is out on holiday this week for New Year and Orthodox Christmas so news flow and trading activity might be somewhat restricted this week.”

Lat-Am in focus

From Latin America, spreads were wider for low-beta names by about 10 bps to 15 bps on Monday morning, a New York-based trader said.

The high-yield space followed the same trend, he said, with bonds from Venezuela and PDVSA down about a point.

Argentina bonds moved lower – with the Bonar 2024s moving to 97 from last week’s 97¾ – but were firmer than those from Venezuela, he said.

And sellers outpaced buyers, he said.

Later in the day, selling of Latin American bonds picked up even more, another New York-based trader said.

Mexico’s five-year notes finished the day wider by about 15 bps to 20 bps, he said.

© 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.