EM sees positive tone; Turkey outperforms; Kazahkstan tightens; Indonesia brings deals

By Rebecca Melvin

New York, Dec. 4 – Emerging market credit borrowed a positive tone from the broader markets on Monday, with outperformance in Turkey’s sovereign and bank debt and notable spread tightening among a select group of sovereigns including Kazakhstan, Russia and Poland.

Investors were cheered by news that the U.S. Senate passed the Republican tax plan, albeit just barely at a vote of 51 to 49, but moving forward with a plan that could usher in $1.4 trillion of tax cuts. The U.S. House of Representatives and Senate still need to reconcile competing versions of the bill, but many expect this can be completed before the end of the year.

In general, improved spreads were offsetting a selloff in rates, one market source said regarding emerging market credit.

A second source said, “Today’s session was far more constructive for EM with global markets taking some support from progress with tax reform and some good strength coming into the lira following the inflation print.”

No new issues were announced for the CEEMEA region however, one syndicate source said.

But in Asia, Indonesia announced plans to price three tranches of dollar-denominated senior notes (expected ratings Baa3//BBB-/BBB-) for Monday’s business.

Citigroup, Deutsche Bank, ANZ and Goldman Sachs were marketing the notes that were guided to 3.05% area for the five-year notes, 3.6% area for the 10-year notes and 4.45% area yield for the 30-year notes.

In Latin America, a handful of deals were roadshowing with pricing subject to market conditions anticipated on Wednesday or Thursday. These include deals from Tecpetrol SA, Infraestructura Energetica Nova SAB de CV, GOL Linhas Aereas Inteligentes SA and Banco BTG Pactual.

In Turkey, credit default swaps tightened by 10 basis points to 190 bps with cash outperforming despite another spike in inflation in November. Bond spreads were tighter by 3 bps to 7 bps.

Turkey’s November inflation figures accelerated further to 13%, up from 11% in October and against a consensus estimate of 12.5%. The core consumer price index also accelerated and stood at 12.1%, compared to 11.8% in October, but it remained below consensus of 12.3%.Among specific segments of the economy, inflation remained notably high in transportation and food and beverage.

“There was some outperformance from the belly” a London-based trader said of Turkey’s sovereign curve, adding that there was good demand there compared to underperformance in the long end, particularly the Turkey 2045 notes.

Turkish financial credits were notably tighter by 15 bps to 30 bps, spurred especially by better demand in Akbank and Yapi Kredi.

“Corporates were also well bid, with the likes of Tuprst and Coca-Cola experiencing double-digit tightening,” the source said.

In the Commonwealth of Independent States region, Kazakhstan continued to see “aggressive spread tightening.” The Kazakh sovereign curve was about 8 bps tighter on the day.

Russia credit default swaps tightened by 2 bps to 131 bps, with cash outperforming 4 bps to 5 bps. This was on better demand for the long end, and corporate spreads were also improved, reversing some of Friday’s losses and with non-energy names outperforming.

In Central & Eastern Europe, Bulgaria improved on the heels of an S&P upgrade on Friday. The Bulgaria 2035 notes were particularly strong. And Poland continued to trade well and was about 5 bps tighter on the day.

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