Rally continues for EM; Brazil sees selling; Asian trading ‘muted’; Middle East gets buyers

By Christine Van Dusen

Atlanta, Oct. 1 – The rally for emerging markets assets continued on Thursday, though with less strength than seen on Wednesday, with many bonds rising as much as nine points.

“Inquiry is steady,” a trader said. “Seen local Brazil selling in the short end, decent size too. The 2021s and 2024s are seeing the best performance. The 2019s and 2020s are still bringing up the rear.”

Looking to Asia, trading was “fairly muted,” given that Hong Kong was out on holiday and China was beginning its golden week, a trader said.

“Historically this is when housing sales and revenues spike onshore,” he said. “Third quarter and fourth quarter are critical for China property markets, and stellar results should be expected for September and October.”

Flows were balanced for most Asian sovereigns, with the short end of Indonesia and Philippines moving as much as ½ point better, he said.

“China, India and Korea still feel a bit heavy,” he said. “High yield is also a bit heavy, with only scrap buyers.”

From the Middle East, buyers were seen for bonds with a five-year and seven-year tenor, a London-based trader said.

The move in oil prices continued having an effect on funding, liquidity and sentiment in the region on Thursday, he said.

“The local-currency deals are slowly draining liquidity from domestic banks, and this could possibly occur in the United Arab Emirates and Kuwait, going forward,” he said. “The risk, of course, is more sovereign dollar supply and an ongoing tightening of liquidity in the region.”

Middle East in focus

Given the redemptions ahead and a still relatively liquid domestic base, the Middle Eastern market is unlikely to see “a huge widening of spreads, but certainly plenty of names have limited value where they are trading currently,” a trader said. “Liquidity will most likely remain testing, and with increased regulation of overseas banks, the moves and gyrations into year-end risk being exaggerated.”

That will be especially true for long-end and perpetual notes from the Middle East, as well as high-yield names, where the marginal local bid is less pronounced, he said.

Turkcell sets size, tenor

In other news, Turkey’s Turkcell Iletisim Hizmetleri AS set the size at $500 million to $1 billion and the tenor at 10 years for its upcoming issue of notes, a market source said.

BNP Paribas Securities Corp., Citigroup Global Markets Inc. and HSBC Securities are the bookrunners for the Rule 144A and Regulation S deal.

The company completed a roadshow last week and is in no hurry to issue, a trader said.

Also Turkey, sovereign bonds were “fairly firm” on Thursday morning after ripping about 8 bps to 10 bps tighter on Wednesday, another trader said.

“But cash is underperforming the credit default swaps move,” 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.