Economic concerns hobble markets; most EM bonds open down; Lebanon, Afreximbank fare well

By Christine Van Dusen

Atlanta, Aug. 2 - Anxiety about the global economic picture led to a volatile Tuesday for emerging markets debt, which had managed to stay rock solid even as the debt ceiling talks wore on and concerns about the euro zone weighed on investors.

"Market attention appears to have passed from relief about a U.S. debt ceiling deal to renewed concerns about the economic outlook," according to a report from RBC Capital Markets. "Concern has increased that additional fiscal tightening could prolong and exacerbate the downturn in U.S. growth."

Cash bonds, in response, started the day at levels 1/4- to 1/2-point lower, a London-based trader said.

"The endless barrage of bad non-EM news does finally seem to be taking its toll on our market," he said.

Said another trader, "The market remains divided between those who look at what's happening to Italian and Spanish yields, gold prices, the Swiss franc, U.S. Treasury yields - and worry about their implications for the broader financial system - and those who see EM as the great panacea to all the world's problems."

The JPMorgan Emerging Markets Bond Index Plus spreads widened 6 basis points to close at Treasuries plus 277 bps, with most sovereigns wider by 5 bps to 10 bps.

And the primary market stayed quiet, with market-watchers just whispering about a possible offering of notes from India's Infrastructure Leasing & Financial Services Ltd. The company may be pursuing a renminbi-denominated deal via Deutsche Bank, RBS and UBS.

MENA solid

In trading, the Middle East and North Africa were "solid as a rock," a trader said.

He pointed to the recent issue of 3.797% notes due 2016 from Abu Dhabi's First Gulf Bank PJSC, which priced on July 26 at par. The notes started the day at 101.50 bid, 101.625 offered before moving to 101.50 bid, 101.60 offered.

"The new First Gulf 2016 dollar notes are making new highs," a trader said, noting "very good volume today between 101.50 and 101.60."

Citigroup, HSBC and Standard Chartered Bank were the bookrunners for the Regulation S notes.

The Abu Dhabi sovereign also opened firm.

Lebanon trades up

Another recent issue was faring well on Tuesday. Lebanon - which sold $1.2 billion notes due 2016 and 2022 in a two-tranche deal on July 28 - was "impressive" early in the session, a trader said.

The deal included $500 million 4¾% notes due Nov. 2, 2016 that priced at 99.98 to yield Treasuries plus 327 bps. The second tranche was a $700 million add-on to the sovereign's 6.1% notes due Oct. 4, 2022, which came to the market at 99.195 to yield Treasuries plus 325.5 bps.

The 2016s were seen Tuesday at 100.62 bid, 100.87 offered.

Blom Bank and Citigroup were the bookrunners for the Regulation S deal.

Later on Tuesday, sellers of the Lebanon notes emerged, a trader said.

Qatar names get support

Also from the Middle East, the Qatar sovereign was very well supported while RasGas Co. Ltd.'s 2027s were trading at 108.75.

And Qatar-based Qtel International's 2025 notes were trading at 98.

"The ugly duckling has turned into a swan," a trader said. "There's demand for long-dated Qatari assets."

And Islamic Development Bank saw better selling of its 2016s.

In other news from the region, Kuwait's Kipco Group saw its first-half profits rise to $61 million, a four-fold increase, a trader said. In response, the company's bonds were well supported, with the 2016 dollar notes seen at 116 bid and the 2020s at 112.12 bid.

"The curve is steep," he said. "The 2020s look OK versus the 2016s. Plus, the coupon just paid on the 2020s two weeks ago."

Dolphin Energy in focus

Meanwhile, Abu Dhabi-based Dolphin Energy Ltd. LLC's 5.888% 2019 dollar notes were trading at 109.60 bid, 109.90 offered.

"She may be cheap to Mubadala here but it feels like there is some paper around at the moment," a trader said. "Mubadala's 2016s and 2014s are 15 and 20 bps tighter on the month."

Later in the session the Dolphin notes "hit a wall" at the 110 cash price, he said.

Afreximbank performs

From Africa, Cairo-based African Export-Import Bank (Afreximbank) saw its recent issue of 5¾% notes due 2016 that priced at par trade on Tuesday at 102.30 bid, 102.55 offered, a trader said.

Commerzbank, HSBC, Mitsubishi UFJ Securities and Standard Bank were the bookrunners for the Regulation S notes.

"There are few buyers on the recent Afrexim 16s," he said. "Nigeria is still doing well. Again though, spreads over the week are struggling."

And South Africa continued to see "huge demand for the sovereign curve, leaving all the corporates behind," he said. "The Middle East and North Africa are simply strong all day."

Turkey starts soft

Looking to Turkey, the tone was soft during the European morning before demand picked up for the sovereign bonds as the session went on, a trader said.

"Corporates are broadly unchanged at the moment, with Akbank's 2015s seeing most of the demand," he said. "On the flip side, and Garanti Bankasi's 2021s and Finansbank's 2016s still seem to have plenty of Street supply."

Later in the day, Turkey was playing catch-up, with the 2030s the most active sovereigns and the 2041s lifted several times on screens, he said.

From Russia, corporates were starting to attract investors' attention.

"Because all the recent EM buying has been of such a specific nature - global funds reallocating into the asset class, focusing on investment-grade names - you might actually start to look at names like Evraz Group, Severstal and Vimpelcom and think they have some relative value," a trader said.

In other trading, Kazakhstan banks lagged, with Alliance Bank's 2017s hitting new lows at 85, he said.

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