Slovenia, Turkish banks outperform; EM bond funds see outflows; Russia's VEB underperforms

By Christine Van Dusen

Atlanta, Dec. 13 - Bonds from Slovenia and Turkish banks outperformed among emerging markets assets on a Friday that saw tighter spreads after the U.S. budget deal and ahead of the Christmas and New Year's holidays.

"Markets were surprisingly active this week, as we approach Christmas, although next week will likely be much quieter," a London-based analyst said.

With volatility in U.S. Treasuries, yields rose on Wednesday and by Friday ended up flat to Monday, the London-based analyst said.

"Central and emerging Europe, Middle East and Asia credit ends the week tighter across the board, helped by the end-of-year effect and the slowdown in new supply," she said.

This came as emerging markets funds saw weekly outflows of $1.6 billion, she said.

"Hard currency swung from robust inflows last week back to outflows, with $534 million of outflows, thereby returning to the dominant trend of the last few months," she said.

From the Middle East, bonds from Dubai continued to see buying on Friday, with particular interest in Emaar Properties after the developer signed a memorandum of understanding to build an urban center at the Expo 2020 site, a trader said.

"In Middle Eastern banks, Emirates NBD outperformed while in the oil and gas sector, International Petroleum Investment Co. and Rasgas both underperformed the sector," the trader said.

Slovenia bonds perform

In other trading on Friday, bonds from Slovenia reacted well to the stress tests for the country's banking industry, which led to a new bank-capitalization plan that was higher than expectations.

"The market appears to have been yearning for clarity and an honest appraisal," according to a report from Erste Group Research. "It seems it got what it craved, and Slovenian government bonds rallied."

The sovereign 4¾% 2018 bonds tightened about 62 bps, a trader said.

This gave overall sentiment a boost throughout Central and emerging Europe, though Poland missed out on any rally, Erste Group said.

"Polish markets were underwhelmed with little in the way of market reaction," the report said. "Overall, liquidity is declining as books are being closed going into the year-end."

Turkish banks tighten

Bonds from Turkish banks tightened as much as 21 bps by Friday, led by Turkiye Is Bankasi AS (Isbank).

"Participation banks tended to underperform despite data showing participation banks had stronger net income performance in October than other banks," the trader said. "Turkish corporates also performed well, 22 bps tighter on average."

Most Russian banks saw spreads narrow, though Vnesheconombank (VEB) underperformed, she said.

"Vimpelcom also enjoyed a strong week," she said.

Russia bonds grow moderately

Bonds from Russia showed moderate growth on Friday after Standard & Poor's rated the sovereign at BBB with a stable outlook, according to a report from UFS Investment Co.

UFS recommends that investors approach this news with cautious optimism, even though "it reduces uncertainty about future rating actions in conditions of a slowdown of the domestic economy observed on the course of the current year."

Russian dollar-denominated bonds should see a slight decrease in yields, UFS said.

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