EM spreads wider but ‘holding OK’; Egypt improves; Turkey weaker; forward calendar grows

By Rebecca Melvin

New York, May 14 – Emerging markets debt spreads remained somewhat wide but were “holding OK” in quiet trading on Monday, a London-based trader said.

Egypt, which was a bright spot in Friday’s session, continued to firm on the back of an upgrade from S&P Global Ratings. The ratings agency upgraded the long-term foreign and local currency sovereign credit ratings of Egypt to B from B- and affirmed the short-term foreign and local currency sovereign credit ratings at B.

The Egypt 4¾% notes due 2026, which priced on April 9, were quoted at 97.62 bid, 98.62 offered on Monday, compared to 96¾ bid, 97¾ offered on Friday. Its sister tranche, the Egypt 5 5/8% notes due 2030, were quoted at 97¾ bid, 99 offered on Monday, compared to 96.62 bid, 97.62 offered on Friday.

On the flip side, Turkey’s credit remained weak. Turkey’s newer 6 1/8% notes due 2028, of which $2 billion priced in mid-April, fell to 95.452 on Monday, which was down another 0.8% on the day. The paper, which priced at a reoffered 99.427, is now down 4% from issue.

The EM debt asset class has been under fire for the last couple of weeks amid sharp declines in key currencies, including the Turkish lira and Argentine peso.

“The market backdrop for EM is not constructive – EM funds outflows, Argentina at the IMF, Iran sanctions, volatility in Turkish bonds, and Ramadan starting this week,” a second London-based market source said.

The Turkish lira is down about 12% against the U.S. dollar this year with a loss of nearly 6% in May alone. And Turkey and Argentina are among developing nations where reserves are lower than levels recommended by the International Monetary Fund.

Argentina has taken drastic steps to shore up its currency in the last two weeks, including three rates hikes bringing its interest rate up to 40%, and it is currently attempting to hammer out a standby lending agreement with the IMF. Such an agreement will help the sovereign meet its external funding requirements despite further shocks to its financial system that may develop and will help keep it from needing to access the international capital markets in the short term.

Currency woes have been triggered by rising U.S. Treasury yields and a stronger dollar amid concerns that the U.S. Federal Reserve may be raising rates more swiftly than expected.

Despite the headwinds currently pressuring emerging markets, the market has seen a sprinkling of new deals join the forward calendar from across various regions in the last couple of days.

On Monday, Israel Chemicals Ltd., African Export-Import Bank and Asian Development Bank joined the forward deal calendar.

Israel Chemicals is planning a dollar-denominated offering of long-dated notes of 20- to 30-year duration. Roadshow meetings regarding the deal will be held in Tel Aviv, London, New York and Boston beginning on Tuesday.

Israel Chemicals is also tendering for its $800 million of 4½% notes due 2024.

Afreximbank mandated banks and scheduled a roadshow regarding a U.S. dollar-denominated offering of five- to seven-year notes.

And the Philippines’ Asian Development Bank also mandated BNP Paribas, Citigroup, Credit Agricole CIB and Goldman Sachs International for an offering of euro-denominated five-year notes.

Meanwhile, Poland’s Bank Gospodarstwa Krajowego has mandated banks and scheduled fixed-income investor meetings for euro-denominated seven- and 12-year notes, according to market sources.

Bookrunners for the dual tranches are BGK, the State Development Bank of the Republic of Poland, Deutsche Bank, HSBC, JPMorgan and Societe Generale; they are arranging the meeting in Europe staring on Tuesday.

In Latin America where the primary market has been nearly at a complete standstill in the past two weeks, Chile’s Empresas CMPC SA has selected banks and scheduled fixed-income investor meetings for a planned offering of dollar-denominated notes of intermediate duration, according to market sources.

JPMorgan, Santander and Scotiabank are arranging the meetings, which began on Friday and will conclude on Tuesday.

These deals join a handful of offerings from last week including Commercial Bank of Qatar, which announced that Barclays, Standard Chartered Bank, BofA Merrill Lynch, Wells Fargo, QNB Capital and Al Khaliji are arranging a series of investor meetings ahead of a possible Regulation S five-year note of benchmark size. Also Africa-focused KEFI Minerals plc is planning a $160 million of listed infrastructure bonds.

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