Prague prices; spreads tighten, buyers emerge; Nakheel refinancing pressures Dubai bonds

By Christine Van Dusen

Atlanta, June 26 - The City of Prague sold notes on Wednesday amid tighter spreads and better buyers for emerging markets assets.

"Another very busy day," a London-based trader said.

The Markit iTraxx SovX CEEME ex-EU index tightened 27 basis points to 240 bps over Treasuries after Tuesday's level of 267 bps while the Markit iTraxx Crossover index spread - seen Tuesday at 511 bps - moved in to 493 bps on Wednesday.

"Concerns remain regarding liquidity for Chinese banks, although the People's Bank of China has sought to reduce fears by using short-term liquidity operations and loan-facility tools," a London-based analyst said. "US Treasury yields rose in the afternoon session yesterday on the back of better US data, and this morning the 10-year is slightly better bid with yields at 2.56%."

Buyers began to emerge from hibernation on Wednesday.

"Our market feels better supported this morning, with buyers for choice," she said.

Sovereign bonds from Turkey were 15 bps to 20 bps tighter, while banking names moved in 10 bps to 20 bps, she said.

Still, there were some laggards. Russia's OJSC Novolipetsk Steel's (NLMK) bonds widened 20 bps on Wednesday after the company was downgraded by Standard & Poor's.

"But elsewhere, names like OAO Severstal and Evraz Group are performing well," she said. "Vimpelcom is 20 bps tighter and VTB Bank is 10 bps to 12 bps tighter."

Dubai under pressure

Bonds from Dubai and its corporates remained under pressure on Wednesday, in part due to the news that state-owned property company Nakheel was looking to refinance loans due in 2015.

"That appeared to spook a few accounts," a trader said. "The price action and the bonds involved lead me to believe that one or two guys are being either stopped out or are throwing in the towel. Given the lack of depth and thinness in of the market, some names in Dubai were at one point this morning a couple of points lower."

The sovereign saw its 2022s move 75 bps wider on the week early in the session, while the 2023s traded in some size at about 89½ bid, 90½ offered. By day's end, the 2022s recovered to close near 104.

And Dubai Electricity and Water Authority's 2020s were mostly flat at 109 to 110 before closing at 111 bid. The company's 2015s, meanwhile, were 70 bps wider on the week.

Middle East in focus

In other trading on Wednesday, Mumtalakat's 2015s were quoted at 100.62 bid, 101.37 offered after trading on Tuesday closer to 101.

"Retail buyers are back on Bahrain Telecommunications Co.'s 2020s," the London trader said.

HSBC Bank Middle East Ltd. saw some two-way activity on Wednesday at the 103½ bid, 104 offered context, he said.

"Abu Dhabi National Energy Co. (TAQA), International Petroleum Investment Co. and Qatar held pretty steady," he said. "Perpetuals are obviously choppy and volatile as well."

Decent volumes for perpetuals

A fair amount of Emirates NBD's perpetuals traded on Wednesday at the 88 to 89 range.

"Abu Dhabi Islamic Bank is going through at 95.87 to 96.87 and Dubai Islamic Bank at the 93 to 94 level," a trader said.

Both issues of perpetual notes recently priced at par.

"The market is having another poor close as the combination of US selling and US Treasuries drifting back to 2.565% sees the market fade," he said.

Ukraine bounces back

Taking a look at Ukraine, sovereign bonds have bounced back as much as 3 points so far this week, said Svitlana Rusakova of Dragon Capital.

"One could hardly call this an offer-less squeeze," she said. "Nobody wanted to get lifted at Monday's levels and prices quickly moved by 1 to 1½ points, after which it was two-way trade."

Demand was noted for the sovereign's 2023s as well as Naftogaz and Ukreximbank's 2018s, she said.

"All these names are fairly liquid, so dealers had some inventory to offer into the rally," she said. "Corporates found it more difficult to bounce, as they have outperformed recently and usually lag the sovereign.

Prague prices, Kenya ahead

In its new deal, the City of Prague priced a €200 million issue of 3 1/8% notes due July 3, 2023 at 99.417 to yield 3.194%, or mid-swaps plus 115 bps via bookrunners CSOB (KBC Group) and Unicredit.

The notes were talked at a spread of 115 bps to 120 bps.

And Kenya has set the size for its upcoming eurobond at $1 billion, a market source said.

The sovereign, which in March announced plans for an issue of notes in the second half of this year, is currently seeking a lead manager for the deal.

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