EM bonds retain strength amid concern about global economy; Middle Eastern bonds stand out

By Christine Van Dusen

Atlanta, Aug. 22 - Emerging markets assets once again managed to put in a solid session, even as Wednesday saw investors turn their attentions back to the global economic crisis in light of mixed headlines from Greece, Japan, Germany and the United States.

The Markit iTraxx SovX index spread ended the day at about 238 basis points over Treasuries, the middle of the range for the week thus far.

"The more upbeat mood about European prospects has stayed in place this morning," according to a report from Barclays. "Conviction appears to have grown that Germany stands ready to give more support to the troubled countries within the euro area."

Still, some profit-taking was reported Wednesday morning for some bonds from emerging Europe as Greece was said to be requesting more time to implement austerity measures and Japan reported a decline in exports for July.

"A slight decline in the eurobond market is expected," according to a report from UFS Investment Co.

Investors were also focused on the Federal Open Market Committee's meeting minutes, which indicated some support for another round of quantitative easing.

"The main take away is likely to be a full discussion of what could be done, rather than a clear indication of what will be done," Barclays said. "Ahead of Chairman Bernanke's Jackson Hole speech and the September meeting, this may be viewed as slightly disappointing by markets, but we would expect only a limited reaction."

Indeed, Russia's 2030 bonds traded mostly unchanged on Wednesday. Poland's bonds didn't move much either, even after the release of moderate inflation data, according to a report from Erste Group Research.

IPIC, Dubai trade well

Bonds from the Middle East, however, were holding very well, a trader said. Standouts included International Petroleum Investment Co.'s 2022 bonds - which closed Wednesday at 111 bid, 111.25 offered after April's level of 104 - and names from Dubai.

"We saw good interest in Emaar Properties' 2016s and 2019s and Majid al Futtaim Holding and Dubai Holding," he said. "Dubai Holding has had a banner week."

And most bonds from Africa performed on Wednesday, he added.

"With GTB Finance where it is, I still think Access Bank looks OK," he said. "Tunisia's 2020 feels like it has a sneaky bid. Angola, likewise, this afternoon. Any sovereign with a decent story that comes would likely be well received."

Egypt's 2020s move up

Egypt's 2020 notes were quoted Wednesday at 101.25 bid, 103.25 offered - up from Tuesday's 98.62 bid, 100.12 offered - after the sovereign formally requested a larger-than-expected $4.8 billion loan from the International Monetary Fund.

"Egypt is trading well the last few days," a trader said.

Egypt's 2040 notes traded Wednesday at 93 bid, 95 offered. On Tuesday the notes were seen at 89.62 bid, 91.12 offered.

CDS see good volume

Credit default swaps for South Africa pushed out to 147 on Wednesday before closing at 143 bid, 146 offered.

"I'm convinced the next month will be interesting, and today gave us a small example of what may lay in store," a London-based trader said. "There was very good volume going through in credit default swaps."

Among corporate issuers from South Africa, Investec Ltd. still looked fairly strong versus FirstRand.

Bahrain, NBAD active

In trading from the Middle East, Bahrain's 2022 notes were active on Wednesday.

"They're on the move," a trader said. "They hit at 99.75 at the close last night. Now they're up at 100.375."

Also active on Wednesday were National Bank of Abu Dhabi's 2019 notes, which closed at 99.50 bid, 99.75 offered.

"There was decent interest around the 99.55 to 99.65 level the past 24 hours," he said. "We were active."

Qatar notes 'choppy'

Qatar's 2042 notes looked "choppy" in trading, going from 122 on Friday to 126 on Wednesday before closing at 124 bid, 125 offered, a trader said.

"Qatar's 2018s traded around the 100.20 to 100.30 level, so about seven bps wider versus the tights reached earlier this month," he said. "On a yield basis, it looks OK-ish to me. I think par holds to the downside."

Deal flow slows

Meanwhile, the primary market was quiet on Wednesday.

"There are still plenty of locals and others out on account of the recent Eid holidays, and with a UK long weekend upcoming and a US holiday the week after that, I'm looking forward to the first week of September," a trader said.

"Hopefully it will be 'all hands to the pump' and there will be some supply to liven up this market even more," he said.

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