Treasuries, Greece deadline make investors risk-averse; some Asian names still tighten

By Christine Van Dusen

Atlanta, May 11 – As U.S. Treasury yields on Monday rose to their highest level since December, bonds from throughout the euro zone saw a sell-off, a situation exacerbated by the continued instability in Greece.

On Tuesday, the embattled sovereign is due to repay a sizeable loan to the International Monetary Fund.

“A whole pot of issues on the boil for the market this week,” a London-based trader said. “It seems likely that the IMF will get its [repayment] tomorrow, but the mood music is angry in Athens and probably no better in Brussels.”

So the tone for trading was anti-risk, he said.

“The big question is how duration softens in a somewhat quiet data week,” he said.

Despite all this, Asian bonds managed to start the week on firm footing, with high-grade cash bonds tightening between 1 basis point and 3 bps on Monday morning, following Friday’s strong session and a rate cut in China.

The $2.5 billion 2½% notes due 2020 that China Petroleum & Chemical Corp. (Sinopec Group) recently priced at 99.576 to yield Treasuries plus 125 bps moved to 115 bps on Monday, a London-based trader said.

And Sinopec’s 3¼% notes due 2025 that priced at 99.022 to yield Treasuries plus 145 bps traded Monday at 137 bps.

The new two-tranche issue of notes from China’s Kunlun Energy Co. Ltd. also received some attention in trading on Monday morning, with the 2 7/8% notes due 2020 that priced at 99.557 trading higher amid solid real-money demand, he said.

Meanwhile, market sources were whispering about upcoming issues from Hong Kong and Industrial and Commercial Bank of China Ltd.

CCB tightens

The recent issue of notes from China Construction Bank (Asia) Corp. Ltd. – 3.996% notes due in 2025 at 99.456 to yield Treasuries plus 242.5 bps – tightened 5 bps on Monday morning before closing at 235 bps bid, 232 bps offered, a trader said.

“India and Korea were a touch firmer, but quiet,” he said. “Malaysia was 1 bp to 2 bps tighter, with buyers in the long end.”

And the 4½% notes due in 2045 that Malaysia’s Petroliam Nasional Bhd. (Petronas) priced at 98.767 to yield Treasuries plus 190 bps traded Monday at 147 bps.

Chinese property benefits

Among high-yield Asian bonds, property companies from China are expected to be the biggest beneficiaries of the rate cut, the trader said.

“The sector closed ½ point to ¾ point higher on the day,” he said. “High yield corporates were quieter, with the sector unchanged to ¼ point higher.”

“The Asian morning was quiet, but London investors hit bids at the open with this rates weakness,” he said. “It does not seem like there is much confidence out there.”

Middle East in focus

Looking to the Middle East, some volume was seen for bonds from Saudi Electricity Co. and National Bank of Abu Dhabi, another London-based trader said.

“Once again, this market holds better than rates,” he said.

Dubai-based DP World, which announced price talk for a new deal, saw its 2037s improve by 30 bps on the week, he said.

“Buyers on the 2017s into 130, bid side, now,” he said.

DP World sets talk

DP World set initial talk in the mid-swaps plus 180-bps area for a $500 million issue of five-year notes via Barclays, Citigroup, Deutsche Bank, Emirates NBD Capital, HSBC, National Bank of Abu Dhabi and Societe Generale CIB in Rule 144A and Regulation S deal.

“Their last foray into the conventional market was 2007,” he said. The credit has performed, generally, very well.”

The proceeds from the notes, which are expected to price on Tuesday, will be used for general corporate purposes.

“The bottom line is, the credit is very well regarded, regionally,” he said. “They definitely do not issue every year. Issuance regionally is lagging redemptions. Local liquidity is very solid, and if the tenor is to be believed, this is nowhere near as much duration as might have been expected when the mandate was announced.”

KDB gives guidance

Korea Development Bank set talk in the Treasuries plus low-80-bps area for a dollar-denominated issue of benchmark-sized notes due in five years, a market source said.

Barclays, Citigroup, Credit Suisse, Goldman Sachs, HSBC, KDB Asia and Societe Generale are the bookrunners for the Securities and Exchange Commission-registered deal.

CMGC on roadshow

China Metallurgical Group Corp. (CMGC) is on a roadshow for a possible issue of notes, a market source said.

BOC International and DBS Bank are the bookrunners or the deal.

The Beijing-based metallurgical engineering contractor designs and constructs iron and steel plants.

Beijing issuer to market notes

Beijing State-Owned Assets Management Co. Ltd. will set out on Tuesday for a roadshow to market a dollar-denominated issue of notes, a market source said.

Citigroup and UBS are the bookrunners for the Regulation S deal.

MBank postpones

Poland’s mBank SA has postponed a planned issue of euro-denominated notes, a market source said.

Commerzbank, Credit Suisse, HSBC and JPMorgan were the bookrunners for deal.

Other details were not immediately available on Monday.

The lender is based in Lodz.

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