U.S. economic data boosts investor spirits, but caution remains; EM funds see outflows

By Christine Van Dusen

Atlanta, Dec. 16 - The market's tone improved somewhat on Friday amid stronger economic data from the United States, including better manufacturing numbers, as well as a sense that the country's recession may not be as dramatic as once feared.

"The moderately better tone of economic data globally has been enough to prevent the market from sliding further," according to a report from Barclays Capital Markets.

Still, investor caution and concern abounds. And that may bode well for risky assets like emerging markets bonds.

"We believe the current market pessimism bodes well for high-beta assets, especially equity and risky asset prices outside Europe, such as in emerging markets, over the medium term," Barclays said. "Nonetheless, we see risk appetite remaining fragile near-term, with euro-area sovereign debt issues dominating market sentiment."

Against this backdrop, emerging markets bond funds saw outflows of $217 million for the week ended Dec. 14, according to the latest data from EPFR Global.

IPIC trading mixed

Among recent new issues, the $3.75 billion of notes due 2017, 2022 and 2041 from Abu Dhabi-based IPIC GMTN Ltd. were somewhat active on Friday.

The deal included $1.5 billion of 3¾% notes due 2017 that priced at 99.669 to yield Treasuries plus 262.5 basis points. The notes were trading on Friday at 99.12 bid, 99.87 offered.

The 5½% notes due 2022 totaled $1.5 billion and priced at 99.743 to yield Treasuries plus 312.5 bps. The notes traded Friday at 98.25 bid, 99.25 offered.

And the third tranche - $750 million 6 7/8% notes due Nov. 1, 2041 - priced at 99.097 to yield Treasuries plus 350 bps. The notes were seen Friday at 100.12 bid, 100.87 offered.

Barclays Capital, Goldman Sachs, JPMorgan, Mitsubishi UFJ Securities, Natixis and Societe Generale were the bookrunners for the Rule 144A and Regulation S deal.

The notes were guaranteed by Abu Dhabi-based International Petroleum Investment Co. PJSC.

TAQA trades up

Also on Friday, traders were watching energy company Abu Dhabi National Energy Co. PJSC (TAQA) and its recent $1.5 billion two-tranche issue of notes due 2017 and 2021 via bookrunners Bank of America Merrill Lynch, Mitsubishi UFJ Securities, RBS and Standard Chartered.

The Rule 144A and Regulation S deal included $750 million 4 1/8% notes due 2017 that priced at 99.502 to yield 4.233%, or Treasuries plus 330 bps. The notes were trading Friday at 100.12 bid, 100.62 offered.

The deal also included $750 million 5 7/8% notes due 2021 that priced at 99.515 to yield 5.94%, or Treasuries plus 390 bps. The notes were quoted Friday at 101.62 offered, 102.12 bid.

Qatar notes get attention

In other trading, Qatar's $5 billion issue of senior notes due 2017, 2022 and 2042 via Citigroup, HSBC, JPMorgan, Mitsubishi UFJ Securities, QNB Capital and Standard Chartered Bank registered some interest on Friday.

The Rule 144A and Regulation S deal included $2 billion 3 1/8% notes due 2017 that priced at 99.719 to yield 3.184%, or Treasuries plus 225 bps. The notes were seen Friday at 100.40 bid, 100.70 offered.

The second tranche totaled $2 billion 4½% notes due 2022 that priced at 98.951 to yield 4.63%, or Treasuries plus 262.5 bps. On Friday, the notes were trading at 102 bid, 102.62 offered.

The deal also included $1 billion 5¾% notes due 2042 that priced at 98.928 to yield 5 7/8%, or Treasuries plus 287.5 bps. The notes were trading Friday at 104.37 bid, 105.37 offered.

Outflows for EM bond funds

In other news, emerging markets bond funds saw outflows of $217 million for the week ended Dec. 14, according to data tracker EPFR Global.

"The glow from the agreement to contain the euro zone debt crisis that was hashed out in late October lasted nearly two weeks," EPFR said in its report. "It took investors two trading days to sour on the latest fiscal pact announced by European Union leaders on Dec. 9. Fund flows reflected this disillusionment."

During the previous week, EM bond funds saw inflows of $163 million, of which $134 million went into hard currency funds and $84 million into local currency funds. It was the fund's best week since the last week of October.

"Flows to EM dedicated bond funds as a whole turned negative this week, although those to hard currency funds remained positive," according to a Barclays Capital analysis of the data. "We think this outflow from ... bonds was due to some investor disappointment related to last week's European Central Bank meeting and risk reduction ahead of the year-end."

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