Emerging markets mixed but spreads tighten; Ukraine plans bonds; Lebanon stands out

By Christine Van Dusen

Atlanta, Sept. 16 - Ukraine announced plans for new notes on Friday as emerging markets assets finished the week with mixed flows, tighter spreads and some solid demand for Middle Eastern names but a mostly quiet tone as investors attempted to recover from the recent spate of volatility.

"I can't honestly figure out any pattern or rationale to the flows, but simply that they are very mixed," a London-based trader said.

The Markit iTraxx SovX spread was 7 basis points tighter at 270 bps while the JPMorgan Emerging Markets Bond Index Plus spread was flat at Treasuries plus 357 bps.

"But the story in cash bonds is more varied," the trader said.

Another trader reported seeing fewer than a dozen trades in the marketplace.

"It was a quiet Friday, all told," he said. "A few credit default swaps went through late in the day, with Abu Dhabi and Qatar trading just above 100 and Dubai trading near the 420 mark."

Good local support was reported for Abu Dhabi's Mubadala Development Bank and International Petroleum Investment Co., and solid interest in Emirates and its 2016s, which have tightened 11 bps over the month.

"Emirates is impressive," he said. "Qatar is actually feeling a little better offered again today, not so much in the 2030s and 2040s but the mid-part of the curve."

Islamic Development Bank saw better sellers of its 2016s, which were trading Friday at 101.37 bid, 101.62 offered. And better buying was seen for Sharjah Islamic Bank.

"It's the typical Friday," he said. "It's the same theme - the better quality of asset, the better it trades.

The bond of the week, he said, was Lebanon's 2019s. IPIC's 2020s also performed well.

Demand for Afreximbank

In other trading, Cairo-based African Export-Import Bank's 2015s saw increased interest and were trading at 99.37 bid, 99.87 offered after pricing at par.

"South Africa is also in hiding until the market gets comfortable that today's stability in local rates will last," a trader said.

Said another trader: "The squeezed bonds remain just that, with Dubai Water and Electricity's 2016s going silly and solid demand for Morocco's 2017s. One will still get into big trouble shorting sukuks, too."

It was a good week for Jordan and its 2015s, which were trading Friday at 94.87 bid, 95.25 offered.

"The view, going forward, is a tricky one," he said. "On the one hand, a vast percentage of the bonds trade well for obvious reasons and technicals are firm. On the other, there are some scary drops going on in Ukraine and parts of Turkey, as well as some Russia credits, which have me a little nervous."

Ukraine softer, Turkey split

Most bonds from Ukraine were softer into the close on Friday. And Turkey's banks were "unbelievably strong," a trader said. "Corporates, less so."

Said another trader: "Turkey remains split, with pure corporates heavy, while banks retain a great bid."

On a regional level, most banks appear to be fairly long on cash, a trader said.

"But on a global scale, the world has still got plenty of serious issues that don't seem to be going away no matter what the rhetoric," he said. "I'm not sure how the market will hold if we see some serious international selling. The first two weeks of September have been pretty eventful, and I don't see this choppy, thin, volatile market and global backdrop going away anytime soon."

Notes from Ukraine by year-end

In other news from Ukraine, the sovereign plans to issue up to $2.5 billion in notes by the end of the year, a market source said.

No other details were immediately available on Friday.

"In Ukraine the sovereign curve continues to shrug off the ongoing gas dispute and International Monetary Fund issues, while the corporates are still in hiding," a trader said.

Taking a closer look at Russia, balanced flows were seen for most names and good two-way interest was reported for Gazprom, Lukoil and Vimpelcom.

"And Kazakhstan's banks are so dislocated," a trader said.

Inflows decline

Inflows into emerging markets bond funds for the week ended Sept. 14 totaled $559 million, according to a report from data tracker EPFR Global.

Though that's down from the previous week's $684 million, the data shows a positive trend, given that the funds didn't report outflows.

"Flows into EPFR global-tracked bond funds had a 'safe haven' feel to them in mid-September, with US and emerging markets bond funds faring well and any fund group associated with European debt struggling to attract fresh money," according to EPFR's report. "Good national balance sheets continue to fuel strong investor demand for emerging markets debt, with Asian issuers currently the clear favorites."

Since the beginning of the 2010, EM bond funds with local currency mandates have attracted three times as much new money as their hard-currency counterparts, EPFR said.

"But, for the second week running, the split has been closer to 50-50," the report said.

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