EM bonds tighten on ECB’s decision to institute QE; Ukraine and Russia conflict continues

By Christine Van Dusen

Atlanta, Jan. 23 – Investors on Friday continued to digest the European Central Bank’s decision to implement significant quantitative easing while Russian credit default swaps moved 25 basis points wider on increasing tensions with Ukraine, a London-based analyst said.

The recent meeting of foreign ministers failed to produce any material change for the conflict with Russia, he said, and a separatist leader has said he has ruled out trying to arrange a ceasefire.

Still, Russian bonds managed to benefit from the European Central Bank remarks, which narrowed credit default swaps by 25 bps, he said. And Russian bank bonds tightened by an average of 62 bps on the week.

“Euro paper actually generally underperformed,” he said, noting that Gazprombank’s 2018s widened by 3 bps.

“Russian corporates were 63 bps tighter on average,” he said. “High-beta names generally performed better as well.”

From Turkey, credit default swaps finished the week about 4 bps tighter, he said, after the Central Bank cut rates. And bank bonds tightened by about 6 bps.

The new 4% 2020 notes from Turkey’s Akbank TAS – an issue that priced at 99.664 on Jan. 15 – moved in by 14 bps while Turkiye Is Bankasi AS’ (Isbank) notes tightened by 14 bps.

“Corporates were 3 bps tighter, on average,” he said.

Looking to Central and emerging Europe, the 2018 bonds from Lithuania narrowed by 4 bps.

“Dollar bonds also tightened, but performance was not as strong as euro assets,” he said.

In deal-related news, South African electricity provider Eskom Holdings SOC Ltd. and Mexican passenger bus and cargo line Grupo Senda Autotransporte SA de CV set roadshows for the coming week.

Saudi bonds unaffected

The death of King Abdullah didn’t have a big impact on Saudi Arabian bonds, given that the successor is expected to maintain current policies, a trader said.

“The region saw the same trend as recent weeks, with investment grade assets once again outperforming while high yield assets and perpetuals remained under pressure,” he said. “Middle Eastern banks were 1 bp wider, on average, this week.”

Banks from Qatar were particular standouts, with Qatar National Bank’s 2020 notes 18 bps tighter and Dubai Islamic Bank’s perpetuals narrowing by 14 bps by Friday.

Overall, though, liquidity was poor and Street activity was very light, another trader said.

“There’s still negative net issuance in the Gulf region’s investment grade and low-beta names,” he said.

Chinese corporates lead rally

Bonds from Asia put in a strong session on Friday, with high-grade cash bonds closing between 2 bps and 5 bps tighter, a London-based trader said.

“China corporates led the rally,” he said, noting that the five- and 10-year notes from China Shenhua Overseas Capital Co. Ltd. tightened by 10 bps and 15 bps, respectively.

“The China high grade property sector closed 5 bps to 10 bps tighter,” he said. “There was good demand in the financial space, as well, with [Huarong Asset Management Co. Ltd.]’s complex 5 bps to 8 bps tighter.”

High-yield property companies from China closed Friday about ½ point to 1 point higher on the day, a trader said.

“The Kaisa Group complex was up 5 points on talks of the company looking for stakes and asset sale,” he said.

The company is under investigation for ties to an allegedly corrupt Shenzhen official.

Asian sovereigns in focus

In Korea, spreads were mostly unchanged or a few bps tighter, a trader said.

“India closed strong, with financials 5 bps to 10 bps tighter on the back of real-money demand,” he said. “Philippines and Indonesia sovereigns staged a comeback, with the long end closing 1½ points higher, roughly unchanged on spread as it did not react to the Treasury move in the afternoon.”

Indonesia’s 2045 traded up at 105 5/8 and closed at 105 3/8 bid, 105 5/8 offered, he said.

Philippines’ 2040 traded up at 108 5/8 before closing at 108 3/8 bid, 108 5/8 offered.

Petrobras, Vale divergent

Looking to Latin America, bonds from Brazil-based Petroleo Brasileiro SA (Petrobras) continued to tighten on Friday while notes from Brazil’s Vale SA widened, a New York-based trader said.

“Different directions for these credits,” he said.

Clients have been much better sellers of Petrobras for the past two days, he said.

And Vale suffered after Standard & Poor’s downgraded the company one notch to BBB+.

“That sent spreads another 10 bps wider, closing 15 bps to 18 bps wider on the week,” he said. “Clients continue to shed the credit, but not in a strong manner.”

Roadshows set

South African electricity provider Eskom Holdings will set out on Jan. 26 for a roadshow, a market source said.

Deutsche Bank, Rand Merchant Bank and Standard Bank are the bookrunners for the Rule 144A and Regulation S deal that is expected to follow.

And Mexican passenger bus and cargo line Senda will depart on Tuesday for a roadshow to market a possible issue of dollar-denominated notes, a market source said.

Credit Suisse and JPMorgan are the active bookrunners and BBVA is the passive bookrunner for the Rule 144A and Regulation S deal.

The roadshow will begin in Switzerland and travel to London, New York, Los Angeles and Boston before concluding on Feb. 3.

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