Risk appetite rises; Citic Pacific, SPIAA, Doha Bank, Islamic Development Bank deals eyed

By Christine Van Dusen

Atlanta, June 14 - Investor risk appetite improved somewhat on Monday, but hardly anyone paid any mind - they were more focused on soccer, which led to thin trading and nary a bit of new issuance from emerging markets.

"Everyone is glued to their screens," a source said, referring to the wildly popular FIFA World Cup tournament. "No one is trading because they're watching soccer."

The day was mostly "dull. It's very quiet," a London-based trader said. "Volumes are below average because of the World Cup."

Risk appetite, yields up

So it was without fanfare that investors showed some new interest in risk early Monday in response to a Moody's Investors Service report that the European economic crisis may not spread as widely or hit as hard as initially believed. That sentiment was echoed in remarks made Monday by a Federal Reserve Bank official.

Also contributing to the slightly more positive attitude was a Fitch Ratings report that said Hungary has adequate reserves and should not have trouble accessing funds. In response, yields on 10-year Treasuries climbed early Monday.

Even Moody's downgrade of Greece's sovereign debt didn't do much to hurt yields, which by afternoon were still up at least 4 basis points.

The JPMorgan Emerging Markets Bond Index Plus spread was 321 bps, down from 331 bps on Friday. And the JPMorgan Emerging Markets Bond Index Global spread was 338 bps, versus 348 bps on Friday.

Trading thin, volume light

But the improved tone didn't translate into sizable movement in the secondary.

"There are no real significant changes," said Enrique Alvarez, debt strategist with think tank IDEAglobal. "As far as individual countries, everyone's up a touch, between 0.1% and 0.2% total return on the day. Spreads are in about 9 basis points, give or take. There's nothing to highlight there."

This trend is expected to continue until the tournament concludes on July 11, he said.

"I would expect to see a die-down in volume in the coming weeks as the teams begin to thin out, and volume is already very light," he said.

Venezuela sets limits

Still, Alvarez was keeping an eye on bonds in Venezuela. On Monday the sovereign set buying limits on the country's new currency market in order to limit demand for dollars. "They're exercising a great deal of limitations on the players in that market," he said. "That could have a very negative effect on their economy and on inflation."

But because the market saw this change coming, "you had a softer tone in past days, and it's been discounted," he said. "If anything, I would describe the bonds today as up a touch."

Among the currencies, everything is "one step softer, for the most part," he said. "Equities are one step firmer in sync with what the United States is doing. There's no big catalyst or new information."

Primary still shut

The primary remained silent on Monday, the London trader said. "New issues are in the pipeline but so far no one in my space has pulled the trigger," he said. "We need a bit more stability."

It would be very difficult to generate interest in a new issue right now, Alvarez said. "It's going to take at least through the month, I would think," for things to pick up, he said. "Maybe once Spain clears its big rollover we might see something, midway through the summer. But for more to happen, conditions have to change. We need more confidence."

Deals may be brewing

Only a handful of issuers made any news on Monday.

Market watchers are whispering about possible upcoming issues from Hong Kong's Citic Pacific and Singapore Power's SPIAA.

Also, Qatar-based Doha Bank may be looking at selling $1 billion bonds this year, a source said. And Jeddah, Saudi Arabia-based Islamic Development Bank, a financial institution created to help economic development in its 56 member countries, is considering pricing two benchmark sukuk issues sometime before the end of the year.

"They might be looking at a deal," the London trader said.

Proceeds would be used to increase lending to member states that are coping with the economic crisis. No other details were available on Monday.

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