EM spreads tighten, volumes stay light; Bahrain, Emirates among month's underperformers

By Christine Van Dusen

Atlanta, Aug. 30 - Emerging markets bonds of Friday saw tighter spreads and light volumes as anxiety about Syria remained and investors prepared for a long holiday weekend in the United States.

"With the probability of immediate international military action [in Syria] receding, markets began to steady, but bid-ask spreads have widened and liquidity is low," according to a report from Erste Group Research.

U.S. Treasuries ended the week mostly flat, at 2.77%, after Thursday's sell-off.

The Markit iTraxx SovX CEEME ex-EU index spread on Friday opened at 252 basis points over Treasuries, 10 bps tighter from Wednesday. The Markit iTraxx Crossover index spread - seen Wednesday at 434 bps - narrowed to 428.5 bps on Friday morning.

"Generally a little weaker in Central and emerging Europe, the Middle East and Asia, although investors remain hesitant as the Syrian situation evolves," a London-based analyst said.

In trading from Turkey, sovereign bonds continued to see some widening.

"Seeing some small retail investor buying in Turkish bank names," she said.

Taking a look back at August, outperformers included International Petroleum Investment Co., Abu Dhabi National Energy Co. (TAQA) and Mubadala, a London-based trader said.

Underperformers for the month included Emirates Islamic Bank and other perpetuals, Bahrain and Emirates' 2023s and 2025s.

"There's also been a decent move wider on well-rated Saudi Electricity Co. paper, outside of the 2017s, which are totally squeezed," he said. "The 2043s are 37 bps wider and the 2022s are 42 bps wider."

Jebel Ali Free Zone (Jafza) has seen its bonds go from trading at 117 in mid-January to 107½ this week.

"Lower, but not exactly utter carnage," he said.

Belarus bonds dip

Notes from Belarus ended the week down about 3 ½ points on the news that Russia will retaliate following the arrest of Uralkali's chief executive officer there earlier this week.

"Net-net, another pretty tricky month," the London-based trader said.

Syria in focus

Looking ahead to September, the turmoil in Syria will play a large role in determining market dynamics, the London trader said.

"Syria is a hugely important and strategic country, regionally, and it almost feels like a massive game of chess being played by not only Middle Eastern nations but also by the likes of China, Russia and France," he said. "Broader markets are clearly going to remain choppy and volatile throughout September and October. Both are traditionally interesting months in the markets."

Ukraine bonds improve

Looking to Ukraine, notes finished the week a bit better, said Svitlana Rusakova of Dragon Capital.

"There were few prices," she said. "It does not seem that supply in quasi-sovereigns has dissipated, though."

Sellers seem to be waiting for a bounce, she said.

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