EM debt weighed by trade; Cyprus joins deal calendar; positive tone lifts Argentina bonds

By Rebecca Melvin

New York, Sept. 17 – Emerging markets debt players were focused Monday on new supply expected to be coming this week, and Argentina’s bonds saw better tone, but much of the space was under pressure as U.S.-China trade fears featured again.

Cyprus joined the new issue calendar with a planned benchmark of euro-denominated 10-year notes. The deal announcement came on the heels of an upgrade to investment grade by S&P on the nation’s long- and short-term foreign and local currency sovereign credit ratings.

S&P lifted its Cyprus rating to BBB-/A-3 from BB+/B and said the outlook is stable, noting that the Cypriot authorities have carved out the bad assets of the country’s second-largest bank, paving the way for a significant reduction in the banking sector’s nonperforming assets.

There were four solid new issues that priced from the Gulf Cooperation Council last week, and based on that positive reception, more deals were announced. But as of late Monday there was no word yet on Saudi Electricity Co. or Dubai’s DP World Ltd., which announced mandates last week.

Saudi Electricity is planning a dollar-denominated dual-tranche sukuk, or Islamic bond, and DP World is planning a 10-year dollar-denominated sukuk and tendering for an existing $650 million of sukuk due 2019.

United Arab Emirates’ Aldar Properties PJSC plans to issue five- to 10-year dollar-denominated trust certificates, the company said in an announcement on Monday.

National Bank of Oman and Islamic Development Bank rounded out the rest of the deals so far that investors are focused on this week, according to a London-based trader.

This week is a likely candidate for corporates and sovereigns to squeeze in issuance ahead of next week’s U.S. Federal Reserve meeting, where the central bank is widely expected to raise short-term interest rates for the third time this year.

Meanwhile, Turkey’s bonds pulled back slightly after a bump up on its central bank move last week to raise interest rates by 625 basis points, which cheered investors. On Monday, the bonds and Turkish lira were a little weaker.

Turkey President Recep Tayyip Erdogan and Russia President Vladimir Putin made the news on Monday after the two leaders agreed to establish a demilitarized zone in Syria’s Idlib region, which has been under threat of a military offensive by the Syrian army to retake the region. The United Nations had warned of a humanitarian catastrophe if the Syrian leader Bashar al-Assad launched such as attack.

The broader markets were also weighed down by trade concerns on Monday as signs mounted that the U.S. trade fight with China was about to ratchet up again. U.S. President Donald Trump has said that he intends to announce new 10% tariffs on $200 billion of Chinese goods, and China officials say they are pulling out of trade talks if these tariffs are unveiled.

Early Monday, Trump included as part of a tweet, “If countries will not make fair deals with us, they will be ‘Tariffed!’”

Tariffs on about $100 billion of China goods have already been imposed by the United States.

Argentina’s tone improves

Argentina’s century bond gained about ¾ point on Monday to 76¼ bid, 76¾ offered, a New York-based trader said.

The rest of the sovereign curve was also deemed better, but there was no notable trading of Argentina corporate bonds.

The improvement was attributed to an upcoming Lebac auction and widely anticipated further support to be forthcoming from the International Monetary Fund as Argentina’s currency remains very weak, the trader said.

The Lebac auction is being viewed as positive regarding how many Lebacs are going to be retired from the market, and “IMF round 2” is expected to yield good results, the trader said.

“We’ll have a better sense of what is going to happen this week, and whether the peso is going to stabilize or continue to go down,” the trader said.

“There is no question in my mind that the IMF is going to be supportive to Argentina,” the trader said.

© 2015 Prospect News.
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