EM debt better after Turkey’s rate hike; new issues trade well; GCC in focus next week

By Rebecca Melvin

New York, Sept. 14 – Emerging markets debt closed out the week on a positive note Friday as investors turned sanguine on the heels of Turkey’s central bank rate hike and an encouraging tone regarding U.S.-China trade ahead of planned high-level talks.

On Friday, the Turkish lira held on to gains registered against the dollar on Thursday, when the currency jumped after the Turkish central bank raised its main rate to 24% from 17¾%, citing concerns over rising inflation. In June, the bank raised rates to 17¾% from 8%.

The move cheered investors, who have worried that the central bank is not independent from Turkey’s president Recep Tayyip Erdogan, who has condemned higher rates.

Tone also improved from last week since the threat of further U.S. tariffs on as much as $200 billion of Chinese goods has not yet been forthcoming.

The J.P. Morgan U.S. dollar Emerging Markets Bond ETF extended gains on Friday after pushing higher Wednesday and Thursday following a low mark notched on Sept. 11.

The iShares ETF put in a solid showing compared to the beginning of the week but remains near the low end of its range for the year.

The new issues that were priced this week, including four from the Gulf countries of the Middle East, priced well and traded up after issue, a market source said.

Kingdom of Saudi Arabia priced a $2 billion 10-year sukuk, or Islamic bond, at 99.997 for a yield of 4.304%, or spread of mid-swaps plus 127 basis points.

The new Saudi sukuk added about 0.25 point in first-day trading, quoted at 100¼ bid, 100.30 offered and pushing its spread to 123 bps on the day.

That paper came on the heels of Arab Petroleum Investments Corp.’s new $750 million of 4 1/8% five-year senior notes that priced on Tuesday at mid-swaps plus 117 bps.

Meanwhile Abu Dhabi Islamic Bank priced $750 million of tier 1 perpetual notes, and Abu Dhabi-based Al Hilal Bank priced a 2023 sukuk for $500 million, both on Wednesday.

Their performance bodes well for a new crop of GCC debt issues next week. DP World Ltd. plans to price a dollar-denominated 10-year sukuk and a possible 30-year bond; Saudi Electricity Co., Islamic Development Bank and Aldar Properties PJSC all announced that they are preparing dollar-denominated sukuk; and the National Bank of Oman plans to issue a dollar-denominated note.

Elsewhere the Republic of Korea priced $1 billion of dollar-denominated notes in 10- and 30-year tranches, with coupons of 3½% and 3 7/8% respectively, and representing a sovereign deal that has been rare in recent weeks.

Last year at this time, there were a number of sovereigns in the market including the Ukraine and other CEE region countries. But U.S. sanctions against Russia has put a damper on this region in recent months.

A London-based trader said he did not see anything pricing but paper from GCC countries for the moment, and said paper from Russia or Turkey looked extremely unlikely.

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