Lebanon, Dubai eye new notes as Treasury yields jump; Mexico wants bigger IMF safety net

By Christine Van Dusen

Atlanta, Dec. 14 - Lebanon and Dubai mulled new issues on a Tuesday marked by another spike in Treasury yields and surprisingly healthy liquidity for emerging markets, given the time of year.

The JPMorgan Emerging Markets Bond Index Plus started the day wider by 1 basis point before finishing 16 bps tighter, even as 10-year Treasury yields jumped 18 bps.

"EM external debt held in, relatively resilient in the face of the Treasury yield back-up," according to an RBC Capital Markets report. "Most sovereigns were down 10 to 25 bps, cushioning bonds' price drop."

A London-based trader also noted the impact of the Treasury spike.

"The main driver these days seems to be the 10-year U.S. Treasuries," the trader said. "We had a 15 bps range yesterday. We are now looking at a 40 to 60 bps move tighter over the week. So perhaps it's time to pause for breath."

Russia's and Turkey's spreads were "barely flinching and very firm," he said.

Decent liquidity

Overall, the market is continuing to trade well, especially given the fact that the pre-holiday slowdown has crept in, the trader said.

"Until we see a downward spiral of outflows and stop losses, the market will continue to hold," he said. "Flow- and liquidity-wise, it's pretty good given the time of year. There are plenty of prices and liquidity around."

Buyers were seen for Dubai, International Petroleum Investment Co. and Bahrain, while sellers were focused on African Export-Import Bank (Afreximbank).

The trader on Tuesday was looking to buy $850,000 of Dubai Water and Electricity Authority's 2016 bonds at 97 and sell $1.5 million of Mumtak's 2015s at 100.65.

"Lower-beta Africa prices are being marked lower with this Treasury move, as usual lagging a little," he said. "Higher-beta Africa, like Ivory Coast, is starting to find a floor around the 50 mark."

Lebanon plans notes

In terms of new issuance from the EMEA region, market sources were whispering about a possible offering of notes from Dubai in 2011.

And the Republic of Lebanon is planning an offering of Lebanon pound-denominated fixed-rate notes via Byblos Bank in a deal that could close as soon as this week, a market source said.

The sovereign's 5.15% notes due 2018 - which priced at par in November - closed in Europe at 98.87 bid, 99.62 offered while the 6.1% notes due 2020 that also priced at par were seen trading at 103.5 bid, 104.5 offered.

Also from the Middle East, Abu Dhabi-based government investment fund Mubadala's 5¾% notes due 2014 were seen trading at 108.55 bid, 108.75 offered while the issuer's 7 5/8% notes due 2019 were seen at 117.15 bid, 117.55 offered.

"Mubadala is starting to catch up," the London trader said. "We're seeing some good bids around on both issues."

Qatar, meanwhile, was "quiet and firm," he said.

The sovereign's 5¼% notes due 2020 closed the European session at 106 bid, 106.75 offered, versus Monday's 106.25 bid, 107 offered. The 5.15% notes due 2014 finished Tuesday at 107.5 bid, 108 offered. On Monday they were at 107.6 bid, 108.10 offered.

And the 4% notes due 2015 ended the session on Tuesday at 103.75 bid, 104.24 offered, as compared to Monday's 103.87 bid, 104.37 offered.

Mexico seeks credit extension

Mexico remained on the market's mind on Tuesday, this time as the sovereign sought to extend its $47 billion flexible credit line with the International Monetary Fund. The extension would increase the credit line to about $73 billion and extend it for two more years.

Mexican central bank governor Agustin Carstens has said this could be a sign of liquidity issues, given the amount of capital flowing into emerging markets, RBC said in its report.

But "we do not believe this should be perceived as Mexican policymakers anticipating facing liquidity stresses," RBC said.

"Rather it is a low-cost pre-cautionary move that will provide a cushion in the event that a renormalization of U.S. interest rates triggers a disruptive EM-wide capital flight shock in a few years time."

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