Mexico adds $1 billion to century bond; EM rollercoaster continues; Middle East strong

By Christine Van Dusen

Atlanta, Aug. 10 - Mexico sold notes on yet another volatile day for emerging markets assets as some optimism about the Federal Reserve's attempts to boost the economy gave way to continued fear and uncertainty about the global financial picture.

It was "another wild, rollercoaster day in the markets," a trader said.

This was particularly true for several EM names, including Russia-based Gazprom, Ukraine-based MHP, Kazakhstan-based BTA Bank and Russia's Vnesheconombank.

"The rally this morning lasted perhaps two hours before we turned around," a trader said. "More worrying is the price action, which today - after the Fed topped up the punch bowl last night - was poor."

Others, like Dubai and Qatar, managed to stay fairly resilient despite all the turmoil.

Still, while some bonds weathered Wednesday's storm, market-watchers remained cautious and concerned.

"Despite the substantial price correction across all assets, we are not inclined to change our asset allocation call," analysts from Barclays Capital Markets said in a report. "We expect a notable snap-back in risky assets in the very short run. However, the medium-term macro and political risks remain high. Concerns about the pending euro area crisis and the robustness of global growth will remain important. We thus remain neutral [on] risky assets."

Mexico prints tap

In its new deal, Mexico priced a $1 billion add-on to its existing $1 billion 5¾% notes due Oct. 12, 2110 at 96.5 to yield 5.959%, a market source said.

The notes priced in line with talk, which was set at 96.5.

Credit Suisse and Goldman Sachs were the bookrunners for the Securities and Exchange Commission-registered deal.

"Mexico getting away a tap of their 100-year bond is impressive, but it's all about duration," a trader said.

EM sees early gains

Emerging markets debt saw solid gains during the Asian trading session.

"Liquidity is still patchy, as you'd expect, but the bid is currently very strong with retail unusually active," a London-based trader said during the morning.

Said another trader: "The open is very firm," a trader said. "Another active morning."

He pointed to Dubai, which started the session up about a point. And Qatar saw buyers out in force, with its 2015 dollar notes trading a few times at about 107, tighter by 20 bps. That paper ended the day wider but was still generally sought after and trading well, a source said.

"Sukuks are just going one way," he said. "International Petroleum Investment Co.'s 2016s that traded down at 101.50 24 hours ago are now at 102.75 bid, 103.50 offered."

Middle East in focus

The recent issue of 2016 dollar notes from Abu Dhabi-based First Gulf Bank PJSC - which priced at par on July 26 - opened on Wednesday at 101.125 bid, 101.375 offered, up about a half-point.

And Abu Dhabi National Energy Co. saw better buying of its 2016s, 2017s, 2018s and 2019s while better selling was reported for its 2012s, 2013s and 2014s on news that the company's second-quarter profit doubled on better sales of gas and oil.

Meanwhile Abu Dhabi's TDIC was an outperformer, which at one point traded at 108. And Qatar-based Qtel International's 2021s and 2025s were well supported.

"Dubai Water and Electricity Authority's 2020s are also up a point," he said, saying it was "all told, a very solid start."

Ukraine, Russia rise briefly

Even Ukraine, which was hard-hit on Tuesday, saw some pockets of demand on Wednesday. The City of Kiev's 2016 notes were inching back, seen at 94.5 bid, 95.5 offered after pricing at par on June 30.

And Russia's corporates bounced. Names that took a beating the day before, like Vimpelcom, were rebounding the best on Wednesday.

"After some initial rejection, bonds have been well received and Europe, Middle East and Asia bond prices are 1 to 2 points higher across the board," the London-based trader said. "The prospect of low rates has people reaching for yield once again, with all those solvency concerns banished from memory."

Gains faded later in the day, however, he said.

"We opened with a very strong tone, especially in Qatar, before fading as the day went on. And toward the close it's very poor price action," he said.

Gazprom, BTA volatile

Many bonds remained highly volatile, including Gazprom's 2016 notes, which on Tuesday hit a low of 106.5 and on Wednesday hit a high of 109 before settling in at between 107.5 and 108.5.

Ukraine-based MHP's 2015 notes traded at a low of 99 on Tuesday and a high of 104 on Wednesday and then were seen at between 102.25 and 103.25.

Kazakhstan-based BTA Bank's 2018 notes, which hit a low of 72 on Tuesday and a high of 76.5 on Wednesday, landed at about 73.5 to 75.5.

And Russia's Vnesheconombank saw its 2020 notes trade at a high of 104 on Tuesday and 107 on Wednesday before being seen at between 105 and 105.75, a trader said.

"This is what's moving in my world," he said.

© 2015 Prospect News.
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