China’s economic injection, Fed official’s remarks boost sentiment; issuers advance deals

By Christine Van Dusen

Atlanta, Aug. 27 – Most emerging markets bonds ripped tighter on Thursday after China pumped billions of yuan into its economy and risk appetite improved on the rebound in U.S. and European equities.

“Strong performance in Asia,” according to a report from Barclays Capital. “Chinese equities also took a breather after falling 25% since Aug. 11.”

Oil-related bonds also benefitted on Thursday as oil prices increased.

“The EM asset class is on fire today,” a London-based trader said. “We came in on the back of a strong U.S. equity close, followed by a bounce in Asian equities as Chinese authorities interfered again.”

China’s move – plus dovish comments from New York Federal Reserve President William Dudley – “supported risk and took us off the lows,” he said.

Bonds from Turkey were among the day’s solid performers, with the belly of the curve again outperforming, another trader said.

“Bank paper and corporates are lagging the sovereign move by 2 basis points to 3 bps,” he said.

The day’s first trades from Latin America were also strong, with Brazil’s 2025s moving about 8 bps tighter and its 2045s tightening by about 10 bps, a New York-based trader said.

“All is well here, as tone improves, spreads tighten, and cash prices get lifted,” he said. “EM credit is starting to trade well again on the heels of this trend.”

In deal-related news, Trade and Development Bank of Mongolia LLC mandated bookrunners, Lebanon set the size for an upcoming transaction, Russia’s OJSC MMC Norilsk Nickel pondered a bond deal, and South Africa sought banks while Kurdistan postponed plans for an issue of bonds.

Lat-Am tightens

Latin American low-beta spreads moved tighter into the close of the day, with Brazil’s five-year credit default swaps spreads closing at 324 bps from 350 bps and Mexico’s at 140 bps from 153.50 bps.

“Cash prices seemed to follow equities throughout the session and largely dismissed any moves happening in the Treasury market,” another trader said. “Prices started to get hit late in the afternoon as equity indices temporarily pared gains. But as they ripped higher, we saw Latin American credit prices prop up immediately.”

Venezuelan bonds outperform

Venezuela’s bonds outperformed on the 10% gain in oil, the trader said, and saw its 2027s close at 39.50 from 36.50. PDVSA’s 2017s ended Thursday at 67.625 from 65.20.

“Good two-way flows throughout the session, as today’s volumes were some of the heaviest seen this month,” he said. “We now look to Asia to carry the torch for this resurgence in risk markets.”

Asia in focus

After Wednesday’s announcement that the People’s Bank of China had infused the interbank money market with short-term liquidity, Asian bonds made “huge moves,” another trader said.

“Buyers across the entire Asia space here,” he said, “with a focus on Korean 10-year utilities early on.”

That pushed the utility-related bonds tighter by about 10 bps before profit-taking took hold, he said.

“The China space is super-strong,” he said. “Oils are leading, about 7 bps to 13 bps stronger, with a focus on 10-year banks and financials, which are 5 bps to 7 bps tighter.”

Indonesia moved higher into the Asian close. while Philippines bonds continued to slowly recover.

Ukraine reaches debt deal

In other trading, Ukraine’s bonds moved tighter on the news that the sovereign had secured a deal to avoid defaulting. The deal includes a 20% haircut on $18 billion of bonds.

“Much better creditors’ terms than expected,” a trader said. “Took another leg tighter as the threat of default within EM subsided from at least Ukraine. Valuations still look cheapish, but the macro remains weak.”

ICA under pressure

Meanwhile, Mexican infrastructure Empresas ICA SAB de CV was under some pressure on Thursday after the company announced plans to sell its stake in Mexico City-based construction company Grupo Aeroportuario del Centro Norte.

The company’s bonds dropped to their lowest level, according to a report from Schildershoven Finance BV. “A week before, ICA’s management had commented that they would sell everything except this asset. It looks like the situation in the company is continuing to deteriorate.”

ICA is also contending with the devaluation of the currency and the government’s reduction in spending, the report said.

“Almost 85% of [ICA’s] backlog is denominated in [pesos] and over 50% of the company’s debt is denominated in dollars,” the report said. “It looks like [the peso] will continue to depreciate further. We expect the situation in the company to become worse.”

Mongolian bank mandates leads

Trade and Development Bank of Mongolia has mandated BofA Merrill Lynch, Deutsche Bank and ING as bookrunners for a $300 million issue of three-year notes, a market source said.

Other details were not immediately available on Thursday.

Lebanon sets size

Lebanon has set the size of an upcoming bond issue at $1.3 billion, a market source said.

The deal is expected to price in September.

Earlier this month, the sovereign announced plans for a benchmark-sized and dollar-denominated issue of notes.

And market sources were also whispering about a possible issue of dollar bonds from Korea Development Bank.

Norilsk Nickel eyes notes

Russia’s Norilsk Nickel is looking at issuing international bonds, a market source said.

And South Africa has sent out requests for proposals from potential bookrunners for a possible issue of international bonds, a market source said.

Kurdistan postpones issuance

Kurdistan is postponing plans for an issue of bonds, a market source said.

The sovereign previously announced plans to meet with international fixed-income investors for a potential transaction.

Deutsche Bank and Goldman Sachs were the bookrunners for the deal.

© 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.