Oil prices under pressure; positive data from Turkey; Asian bonds mixed; Slovenia plans notes

By Christine Van Dusen

Atlanta, Aug. 23 – Slovenia advanced a deal and Asian bonds were mixed on a low-volume Tuesday that saw oil prices set the tone for emerging markets assets, most notably those from the Middle East.

Investors are awaiting next month’s meeting of the Organization of the Petroleum Exporting Countries, which could decide to cap output. But in the meantime, countries like Iraq and Nigeria are upping production, contributing to the likelihood of continued oversupply.

In Nigeria, expectations were rising that the government could soon start holding peace talks with rebels, who have been interrupting oil production with attacks on important facilities.

“Oil is under pressure for the second day,” according to a report from Schildershoven Finance BV. “We don’t recommend investors to make any strong bets on this story, as future dynamics are unpredictable.”

Middle Eastern bonds are feeling the pressure of oil prices, a London-based analyst said.

“With oil being the engine of the [Gulf region], low prices have resulted in decelerating economic growth as well as increasing fiscal and current deficits,” he said. “The shock has, however, impacted [Gulf region] sovereigns to a varying extent, with Kuwait, Qatar and the United Arab Emirates seen as less impacted than Bahrain, Oman and Saudi Arabia.”

Looking to Latin America, spreads finished mostly unchanged on the day, with Mexico underperforming on the news that a downgrade could be coming, a New York-based trader said.

The sovereign’s five-year credit default swaps spreads closed at 136 basis points from 135 bps but did trade as tight as 132 bps prior to the news, he said.

From Asia, sovereign bonds were mixed on Tuesday, with Indonesia’s 10-year notes lower by 20 bps, Malaysia’s 10-year up by 19 bps and China’s 2027s higher by 39 bps, a trader said.

Lat-Am in focus

Brazil’s CDS closed at 256 bps from 255 bps, the New York trader said.

“Cash prices finish firmer as a lack of sellers has buyers continuing to chase market and sellers scarce,” he said. “Lat-Am high yield finishes higher on the day, with Venezuela and Argentina firmer.”

Venezuela’s 2027s closed at 50 from 49.25, PDVSA’s 2017s finished at 76 from 75.75, and Argentina’s Bonar 2024s moved to 117.95 from 117.60, while its 2026s were up at 111.70 from 111.15, he said.

“Flows did pick up versus yesterday but continue to be on the lighter side, with better buying as the dominant theme,” he said. “The market currently appears to be in a bit of a summer holding pattern with few catalysts ahead of Friday’s Jackson Hole [meeting], which should ignite some volume into this otherwise quiet market.”

Strong data from Turkey

In news from Turkey, new economic data revealed that consumer confidence is strong, even in the face of political tumult, the analyst said.

“The data is a positive read amid concerns about faltering economic growth following the July 15 coup attempt,” he said.

Bonds were strong into the close, with spreads holding at 10 bps tighter in the belly of the curve, a trader said.

Egypt deal ahead

Egypt appears to be on track to receive its three-year loan totaling $12 billion from the International Monetary Fund.

“Both sides reached a staff-level agreement on Aug 11, but an IMF spokesman stated that the program was still subject to financing from other donors,” the analyst said. “Yesterday’s decision by the UAE to provide the Central Bank of Egypt with a six-year, $1 billion in deposits should therefore be seen as progress and also a sign of continuing strong willingness by the [region] to stand behind the current leadership.”

The IMF agreement is also expected to “pave the way for a new eurobond issuance,” he said, noting that bookrunners have been selected. Last week the sovereign announced that BNP Paribas, Citigroup, JPMorgan and Natixis would lead the dollar-denominated deal.

Azerbaijan in focus

Investors were also keeping an eye on Azerbaijan, where lenders have either stopped hard currency sales or limited transactions to a maximum of $500 per person following two devaluations last year.

Though some market-watchers are calling this a crisis, “we do not expect any dollar shortage to affect the International bank of Azerbaijan in maturing its eurobond due in October 2016,” Schildershoven said. “In our view, the bank has enough liquidity and it will get access to the government hard currency reserves if needed, given its status of a sovereign bank and the possible reputation risks.”

Slovenia to issue notes

Slovenia is planning to issue euro-denominated notes as part of a tender offer, according to an announcement from the sovereign.

Slovenia is inviting eligible holders of its outstanding $2.25 billion 5½% notes due 2022, its $2.5 billion 5.85% notes due 2023 and its $2 billion 5¼% notes due 2024 to tender their notes for cash.

Barclays Bank, Deutsche Bank, Goldman Sachs and JPMorgan are acting as dealer managers and Lucid Issuer Services is acting as information and tender agent.

© 2015 Prospect News.
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