Flows lighten, issuance slows for EM at start of Olympics; Middle East bonds see support

By Christine Van Dusen

Atlanta, July 27 - With summer vacations, Ramadan and Olympic Games-related festivities underway, flows were light and the primary market was quiet on Friday for emerging markets assets.

"Flow-wise, as expected, it's quiet today and we're clearly not expecting much from next week, apart from some pockets of activity here and there as people realize they need to cover bonds they have been lifted in, otherwise they will be offside quickly," a trader said. "I'd be very surprised if the syndicate desks were not readying their pencils for the first week of September at the earliest."

The other line of thinking, he said, is that new issues can reinvigorate curves.

"Just look at the Russian examples, where new issues focus people's attention on the name, and with the right deal can actually reprice a curve tighter," he said. "The old days of selling secondary once a new deal is announced I'm not quite sure holds true anymore."

Amid the quiet, notes from the Gulf region remained well supported, a London-based trader said.

"It's simply supply and demand dynamics, really, and some yields still look appealing in this global environment," he said.

As a case in point, he noted that Qatar's 2023 notes were trading at 102.625.

"Maybe that appears rich to some, but given the relative strength of the Qatari balance sheet and the yield of 2.95%, there are arguably worse places to be parking one's cash," he said.

Long-dated bonds remained very popular and made "staggering" moves, he said.

"They still queue up around the block to pick up pieces of International Petroleum Investment Co.'s 2041s and Abu Dhabi National Energy Co.'s 2036s," he said. "Apparently there is no need to issue for a majority of these names, and of course that is very supportive for the price action. However these are wonderful issuing all-in levels for a bevy of names at the moment."

Those two issues earned his nod for "bonds of the week," he said.

"On a day like today, with the long bond selling off, these bonds have had a superb day," he said.

Access notes in focus

In other trading on Friday, the recent issue of $350 million 7¼% notes due 2017 from Nigeria's Access Bank plc that priced at par opened at 98.62 bid, 99.62 offered after closing Thursday at 98.50 bid, 99 offered.

On Wednesday the notes were quoted at 98 bid, 99 offered.

Citigroup and Goldman Sachs were the bookrunners for the Rule 144A and Regulation S deal.

"The first seven months of the year are almost out of the way and basically buying a chunk of every deal and sticking it on the back book was the move, but that's easier said than done," the London trader said.

Jafza's bonds trade up

The recent deal from Dubai's Jebel Ali Free Zone (Jafza) - a $650 million issue of 7% notes due 2019 that also priced at par - was trading at 105.75 bid, 106.75 offered on Friday.

On Thursday the notes were seen at 105.50 bid, 106 offered.

Abu Dhabi Commercial Bank, Abu Dhabi Islamic Bank, Citigroup, Dubai Islamic Bank, Emirates NBD, National Bank of Abu Dhabi and Standard Chartered were the bookrunners for the Regulation S deal.

Qatar sees some action

The $4 billion sukuk issue from Qatar funding vehicle SoQ Sukuk was on radar screens on Friday.

The deal included $2 billion 2.099% notes due 2018 and $2 billion 3.241% notes due 2023 that both priced at par.

The 2018 notes traded Friday at 100.50 bid, 105.50 offered after Thursday's levels of 100.35 bid, 100.50 offered. The 2023 notes were quoted Friday at 102.55 bid, 102.95 offered after being quoted Thursday at 102.05 bid, 102.35 offered.

Barwa Bank, Deutsche Bank, HSBC, QInvest and Standard Chartered Bank were the bookrunners for the Regulation S deal.

Inflows decline

Inflows into emerging markets bond funds dropped to $393 million for the week ended July 25, according to a report from EPFR Global.

During the previous week, emerging markest bond funds reported inflows of $935 million.

"With policymakers expected to respond with more monetary stimulus that will put further pressure on the returns from 'safe' assets, investors focused on yield during the week ending July 25," EPFR said.

Flows favored hard currency-focused funds more than those with a local currency mandate by a nine-to-one margin, the report said. And retail investors accounted for half of the flows into all emerging markets bond funds and two-thirds of the flows into emerging markets corporate bond funds.

"The flows reflect an increase of investor tensions," according to another report from Barclays. "We think the inflows to bonds are likely to rebound in the following week as investor expectations of [European Central Bank] support for European government bond markets triggered a rally in risky assets and a compression of peripheral euro area yields."

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.