Venezuela's CAF prices amid investor optimism; EM bonds see more buyers; Russia stands out

By Christine Van Dusen

Atlanta, June 6 - Venezuela's Corporacion Andina de Fomento (CAF) sold notes on a better Wednesday for emerging markets assets, which were buoyed by some positive data and optimism about supportive moves from the European Central Bank.

"The market started off well-bid from the word 'go' and never really took its foot off the pedal," a trader said. "I must admit, though, that a lot of these bonds are not really 'trading' at the moment and remain very sticky."

Another trader noted the "light-ish" flows.

"It's a very technical market, and a $25-drop in oil prices since late February has barely dented regional asset prices," he said. "Local bank liquidity is high and many of the fixed-income products still look appealing, given the U.S. front-end rate curve and bank returns on cash."

Although a rate cut isn't expected from the European Central Bank meeting, there should be an announcement on a schedule of low interest rate lending to euro zone banks. This could help sentiment, according to a report from Barclays Capital Markets.

"It would be an insurance against an intensification of deposit flight and it would be a positive signal to markets that the [European Central Bank] is taking action to contain the crisis," the report said.

This fueled some bond buying on Wednesday, a London-based trader said.

"As rumors abound of more official intervention, we are starting afresh with a wave of buying that puts spreads typically 10 basis points to 20 bps tighter," a London-based trader said. "Whether it's a surprise rate cut from the European Central Bank, a very long-term repo operation, a donation to Spain or simply that people have got bored of selling, the mood has changed completely."

The Markit iTraxx SovX spread started the session at Treasuries plus 344 bps, down from the wides of 367 bps on Friday, and finished at a spread of about 333 bps.

"Clearly U.S. Treasuries account for a chunk of this, but still clients have voted with their high cash allocations and driven spreads in," the London trader said. "Client flow is unanimous, with buying of all the benchmark assets. Oil is still below $100, but Russia is just flying, with the long end seeing huge demand and quasi-sovereign banks moving up in line."

Russian bonds trade up

Russia's 2042 bonds were up 3 points. Corporates Vimpelcom and Evraz Group were 50 bps tighter.

Even Ukraine opened 20 bps tighter, despite there being no progress on the sovereign's deal with the International Monetary Fund.

"The power of optimism is met by the usual great comments such as 'options on the table' and 'ready to stand by' while others such as 'downside risks increasing' are politely ignored," a trader said.

IPIC, SECO active

In other trading on Wednesday, Abu Dhabi-based International Petroleum Investment Co. saw its 2015 notes trade at 103 bid, 103.75 offered and its 2016 notes at 108.62 bid, 109.62 offered. Later in the day, the 2015 notes were quoted at the same levels, but the 2016 bonds moved to 108.75 bid, 109.75 offered.

"We've seen buyers for IPIC," a trader said.

Saudi Electricity Co.'s 2022 notes were trading early in the day at 102.10 bid, 102.60 offered and were later seen at 102.30 bid, 102.70 offered. The notes were quoted last week at 101.75 bid, 102.25 offered.

"SECO snapped back a good 20 bps today," he said.

Dubai names trade well

Looking to Dubai, most names traded well on Wednesday, except for DP World's 2037 bonds and Dubai Holdings' 2014 bonds and 2017 bonds, he said.

"Dubai Holdings' 2014s look mildly interesting to me at these levels. There are limited bonds from the region, too," he said. "Worth highlighting is the recent Dubai 2017 issue, which is getting totally squeezed."

Middle Eastern bank paper remains well supported, he said, with demand noted for Abu Dhabi Commercial Bank and First Gulf Bank.

"There's a little more action in Lebanon assets too, as bonds might be finding a clearing level after the move lower in recent weeks," he said.

Dar Al-Arkan tightens

Also from the Middle East, Dar Al-Arkan's 2015 bonds were seen trading in the 102.25 to 103.25 range, about 103 bps tighter on the month.

Saudi Arabia-based Banque Saudi Fransi's 2015 notes - which traded at 104.50 bid, 105.25 offered on Friday - were quoted Wednesday at 104.62 bid, 105.37 offered.

Meanwhile, South Africa's five-year credit default swaps were trading at 188 bid, 193 offered.

"Good spread moves in South Africa," a trader said.

Eskom Holdings was a standout in South Africa's corporate space. Its 2021 bonds traded Wednesday at 106 bid, 107 offered.

CAF sells notes

In its new deal, Venezuela-based lender CAF priced a CHF 60 million add-on to its existing notes due Dec. 19, 2014 (A1) at par to yield Libor plus 145 bps, a market source said.

Credit Suisse was the bookrunner for the transaction.

The original issue of CHF 175 million also priced at par to yield Libor plus 145 bps.

BTA bonds unchanged

Kazakhstan-based BTA Bank was back in the news on Wednesday after reports that a senior official said his signatures were forged to sign backdated loans last year, prior to the troubled lender's second restructuring.

"The bonds are unchanged, but the situation is more opaque," the London trader said.

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