Emerging markets see volatility in secondary; quiet end for primary market; Europe eyed

By Christine Van Dusen

Atlanta, Jan. 13 - Emerging markets assets finished the week on a volatile note, with no new issuance and several moments of serious buying closely followed by a lull in activity in the secondary market.

"It's been a steady week, flow-wise, but still below what I would expect from this time of the year," a trader said.

Said another trader, "It's a very technical market, characterized by periods of rabid demand for EM risk and then vacuums where it's, 'good luck if you want to sell paper.'"

Retail investors were seen supporting five-year assets.

"But away from that, enjoy the volatility," he said. "I feel more like a detective than a bond trader, spending most of the day trying to identify what's driven particular price action."

Ukraine was the day's biggest loser, he said. And South Africa's 2024 bonds couldn't push above par as Fitch Ratings put the sovereign on negative outlook.

"South Africa is still working on cleaning out people who didn't really want the new 2024s where they were allocated," another trader said.

Bonds from Russia did manage to perform on Friday, with Gazprom and Vimpelcom particular standouts, a London-based trader said.

"Even Turkey is catching a decent bid, with the sovereign curve 10 basis points tighter," he said.

More caution could creep in during the coming weeks, according to a report from Barclays Capital Markets.

"Contrarian sentiment indicators suggest that investor optimism may have reached stretched levels and be more vulnerable to negative headline news in the near term," the report said. "Longer term, given the continued threat of event risk, we see a volatile but steady grind higher in risk assets over the coming months if we do get clarity and stabilization on the political front."

2012 'choppy' so far

So far, 2012 is looking quite a lot like the first half of 2011, a trader said.

"There are choppy, volatile weeks and supply when possible from issuers, which in turn re-prices the secondary," he said. "Dealing desks are not willing to hold decent enough inventory. There's poor liquidity for off-the-run or higher-beta names."

And, he said, there's a lot of "head scratching" about what's going on in Europe, China, Iran and the Middle East.

Recent issues close wider

By Friday afternoon, the market was digesting news of European downgrades.

"That completes a pretty poor week, spread-wise, from my world," a trader said. "The brief lifting that occurred at the open of the year is now a distant memory."

The recent new issue of $500 million 4.046% notes due 2017 from Abu Dhabi's FGB Sukuk Co. Ltd. - a unit of First Gulf Bank PJSC - was seen closing 10 bps wider, he said.

The notes came to the market at par to yield 4.046%, or mid-swaps plus 287.5 bps, via Citigroup, HSBC, National Bank of Abu Dhabi and Standard Chartered Bank in a Regulation S transaction.

And the $500 million issue of 4.718% notes due 2017 that Dubai's EIB Sukuk Co. Ltd. priced during the week at par to yield mid-swaps plus 350 bps closed Friday 15 bps wider.

Citigroup, Emirates NBC Capital Ltd., HSBC, National Bank of Abu Dhabi, RBS and Standard Chartered Bank were the bookrunners for the deal for the unit of Emirates Islamic Bank, a Dubai-based lender.

Tamweel sees bids

And Dubai's Tamweel Funding III Ltd., which priced a $300 million issue of 5.154% sukuk notes due Jan. 18, 2017 at par to yield mid-swaps plus 400 bps, closed about 50 bps wider.

Citigroup, Dubai Islamic Bank and Standard Chartered Bank were the bookrunners for the Regulation S deal.

Tamweel Funding is a unit of Tamweel PJSC, a real estate developer.

"I was asked to bid all afternoon," a trader said.

BTA bonds get support

Looking to Kazakhstan-based BTA Bank, the lender - which had failed to pay a coupon and was looking at a second restructuring - saw its 2018s find some support, the London trader said.

In other news on Friday, the Republic of Lithuania mandated Barclays Capital and BNP Paribas for a dollar-denominated issue of benchmark-sized notes, a market source said.

The Rule 144A and Regulation S transaction is likely to come to the market following a roadshow in the United States and the United Kingdom.

Slovakia could issue again

And the Slovak Republic, which recently priced a €1 billion issue of 4 5/8% notes due 2017 at 99.69 to yield 4.696%, is entertaining the idea of tapping the issue for up to €3 billion.

HSBC, Societe Generale, Tatra Banka and Unicredit were the bookrunners for the Regulation S deal, which came to the market at a spread of mid-swaps plus 305 bps.

"Slovakia intends to reopen the issue through domestic auctions or a syndicated transaction at a later stage," the sovereign said in an announcement.

Bond funds in focus

Emerging markets bond funds reported outflows of $740 million for the week, according to a report from data tracker EPFR Global.

This number was skewed, though, given that a fund family that normally reports weekly numbers instead reported monthly numbers, said Cameron Brandt, global director of research for EPFR.

"If those were factored out the EM Hard Currency Bond Funds enjoyed their first inflow in over a month," he said.

© 2015 Prospect News.
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