Kexim to price add-on to 2016 notes; Syria trouble pushes spreads wider, hurts sentiment

By Christine Van Dusen

Atlanta, Aug. 28 - Tensions around Syria kept investors cautious on a Wednesday that saw risk aversion, wider spreads and light activity amid continued volatility.

"The Syrian situation continues to dominate headlines as Western nations contemplate military action," a London-based analyst said. "The most obvious impact has been on oil prices, with Brent up almost 4% yesterday."

Following Tuesday's rally, U.S. Treasuries gave up some gains on Wednesday morning, moving to a yield of 2.74%.

The Markit iTraxx SovX CEEME ex-EU index spread on Tuesday opened at 262 basis points over Treasuries, wider by 5 bps from Tuesday. The Markit iTraxx Crossover index spread - seen Tuesday at 420 bps - widened 14 bps on Wednesday morning.

Emerging market bonds, for the most part, were weaker on Wednesday morning, the analyst said.

"Turkey sovereign cash is down a ½ point to 1 point and credit default swaps 5 bps wider," she said. "The Middle East and North Africa are also suffering, especially Dubai perpetual names, which have fallen alongside equities."

Bonds from Russian corporates also had a challenging day, with some small selling reported for Vimpelcom, OAO Lukoil, OJSC Gazprom and Sberbank.

"Very tricky market all told, with the U.S. long weekend coming up," a London-based trader said. "And as the swimming trunks get packed away for another year, the kids head back to school, the syndicate desks get their notepads out and the Syrian tragedy continues, it paves the way for a very interesting September ahead."

In deal-related news, Export-Import Bank of Korea (Kexim) announced plans for an add-on to its existing 3¾% dollar notes due 2016 via HSBC in a Securities and Exchange Commission-registered deal.

The original $700 million issue priced on April 20, 2011.

Gulf bonds better offered

Taking a closer look at trading of bonds from the Middle East, most bonds were better offered on Wednesday morning, a London-based trader said.

"Majid al-Futtaim Holdings has been marked lower on limited volume," he said. "Their two bonds are 45 bps wider on the week."

Dubai's 2023s were trading down at 891/4, then moved to 88 5/8 before closing at 87½ bid, 88¼ offered.

And Bahrain's 2023s were spotted at 96.37 bid, 97.37 offered.

"That's 40 bps wider on the week," he said. "There are still a few bonds holding in OK-ish, but they will most likely be picked off and sold as time goes on and people realize that seven-year and longer bonds really are down 10 points to 20 points versus the beginning of the year."

IPIC, SECO trade lower

International Petroleum Investment Co.'s 2020s were quoted Wednesday in the low-106s, the London trader said.

"That's down from 108¾ in mid-July," he said.

Saudi Electricity Co. moved lower, with spreads 15 bps to 25 bps wider on the week.

"This excludes the 2017s, however, which remain a rock," he said. "Selling them to buy the 2022s is a decent trade at the moment. Over the month these have moved 50 bps apart."

Perpetuals suffer

Perpetual bonds from the Middle East were lower in trading on Wednesday, he said.

Emirates Islamic Bank's perpetuals were quoted at 87¼ bid, 88¾ offered, about 125 bps wider on the week. Last week, the notes were seen near the 92 mark.

Abu Dhabi Islamic Bank's perpetuals were trading at 97 and Dubai Islamic Bank's at 941/4.

"Ouch," he said. "Perpetuals are all for sale."

Abu Dhabi Commercial Bank's 3 1/8% notes were trading Wednesday with an 89 handle, a trader said.

"Its cash price performance is mirroring that of the Emirates Islamic Bank perpetuals, although both did just get their deals away before sentiment shifted," he said.

Some activity for South Africa

And from Africa, South Africa's 2016s saw some two-way activity in the 102 3/8 to 103 3/8 context, he said.

"The market is much better offered in this part of the world today, however liquidity remains testing," a trader said.

Lat-Am sovereigns mixed

From Latin America, sovereign bonds were mixed, a New York-based trader said.

Higher-yielding bonds from Argentina and Venezuela fell on the day while Brazil outperformed.

"We saw better selling from accounts as volumes remain lighter then prior weeks," he said.

Corporates moved lower on the day, with some spreads widening, another New York-based trader said.

"There continues to be no support in the aggregate for this market," he said. "We are now about 2 points lower on most off-the-run corporates since last Wednesday's close, with a few outliers continuing to get beat up worse than the pack."

Infrequent trading

Off-the-run credits from Peru continued to weaken in infrequent trading, a trader said, and could no longer hold previous levels.

"Customer selling continued, with reluctant dealers putting lower and lower bids, thinking 'they are not going to buy them,'" he said. "And guess what? They become proud owners."

Overall, trading was sporadic in most Latin American credits, he said.

MMK in focus

One trader was keeping an eye on Russia-based OJSC Magnitogorsk Iron and Steel Works (MMK).

The steel producer's second-quarter earnings beat estimates even as the company reported a net loss in the quarter of $155 million.

In April MMK went on a roadshow for a dollar-denominated issue of benchmark-sized bonds, the proceeds of which were expected to be used to refinance existing indebtedness and for other general corporate purposes.

But a deal never materialized.

"MMK currently have no eurobonds outstanding," she said.

Ukraine bonds illiquid

In trading from Ukraine, bonds so far this week have been illiquid, said Svitlana Rusakova of Dragon Capital.

Sovereign bonds have seen some decent bids, she said.

But "we saw further supply in quasi-sovereigns without matching bids," she said, noting they've moved a ¼ point to a ½ point lower.

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