EM optimism grows on ECB bond-buying and U.S. jobs data; Gazprom, Sberbank stand out

By Christine Van Dusen

Atlanta, Oct. 6 - Emerging markets debt had a stronger day on Thursday following the European Central Bank's announcement that it would begin a bond-buying program in November and following news that weekly jobless claims in the United States climbed a less-than-expected 401,000.

The JPMorgan Emerging Markets Bond Index Global spread tightened 15 basis points to Treasuries plus 462 bps.

"With more generally supportive statements, there has been very good buying of emerging Europe, Middle East and Asia on much-increased volumes," a trader said.

Said another trader, "It's been a very strong morning that has taken the market to a more balanced level."

Stars of the day included Gazprom's 2037s, which were up 5 points, and Sberbank's 2021s, which were up 4 points. Metalloinvest was up 3 points while Dubai Water and Electricity Authority finished on Thursday 30 bps tighter.

"The market saw a good bout of spread tightening today, making Tuesday's severe repricing seem a distant memory," another trader said. "Liquidity is thin and orders doing the rounds see prices react in the marketplace. Flow wise, it's been moderately active with plenty of retail two-way."

The Markit iTraxx SovX spread tightened 15 bps to 340 bps.

"The European Union and International Monetary Fund are now making all the right noises and the appetite for risk is back," a trader said. "It's another strong open, with the Markit iTraxx SovX spread at 340 [bps], which is another 15 basis points tighter. There's also been commensurate buying of all the liquid benchmarks."

Overall, it was a fairly active day.

"There's generally been good Street demand for most of the day with a few little wobbles here and there," a trader said.

The primary market remained quiet, with just Korea-based lender Suhyup Bank and Turkey-based Kuveyt Turk Katilim Bankasi AS planning roadshows.

Ukraine tightens

In trading on Thursday, Ukraine opened 20 bps tighter. And at the end of the session, most corporates were in good shape, with only City of Kiev lagging.

"There's a return of some liquidity to off-the-run risk, with Ukraine corporates trading once again and interest to buy Kazakhstan banks, with Alliance Bank and BTA Bank both off lows," a trader said.

BTA Bank finished the day trading at 42.5 to 43.5, he said.

"BTA released some audited results on the quiet, which are worse than the initial numbers, but the bond still sees very good two-way interest," he said.

Better day for Russia banks

Gazprom and KazMunaiGaz also opened stronger while most of Russia's quasi-sovereign banks saw a bounce.

"As much as we hated them before, we love them now," a trader said.

And Turkey was firmer at the open, but not seeing much activity.

"Both sovereigns and corporates are benefitting from the positive mood," he said.

This better mood came against the backdrop of news that Garanti Bankasi AS is abandoning efforts to stem loan growth and could be interested in the sale of a majority stake in Eurobank Tekfen.

"But they quickly denied the news," the trader said.

YapiKredi gets downgraded

Also from Turkey, Moody's downgraded YapiKredi's deposit rating to Baa2 from Baa1, triggered by the ratings agency's downgrade to C- from C of the stand-alone bank financial strength rating of its parent, UniCredit.

"This will have an adverse effect on its cost of funding, but even this news doesn't hold YapiKredi to creep higher in this market," a trader said.

At the same time, Finansbank's 2016s were bid higher in the Street after the lender denied reports of a stake sale by the National Bank of Greece.

Turkey lags a little

By day's end, Turkey's sovereign bonds had fallen behind, a trader said.

"Having outperformed so well on the way down, Turkey is now lagging a little on the bounce," he said.

But overall, Turkey performed fairly well on Thursday, he said.

"Sovereigns are 15 bps tighter with activity mainly on the longer end of the curve," he said. "We were mainly asked to offer banks today."

In other news from Turkey, Istanbul-based Islamic financial institution Kuveyt Turk is planning a roadshow for a possible dollar-denominated issue of sukuk notes, a market source said.

No other details on the possible Regulation S deal were immediately available on Thursday.

Lebanon, DEWA draw interest

After the fairly strong morning, the strength faded a bit into the European afternoon, a trader said.

"There's some activity in Lebanon, especially the 2022s, last seen at 101.30 bid, 101.60 offered," he said.

Another trader reported that the sovereign's 2013s were trading at 108 bid, 108.5 offered.

"Dubai Water and Electricity Authority's 2020s were squeezed higher again this morning, printing as high as 94 and now offered there," a trader said.

By the end of the day, names from Dubai were seeing good interest, but DEWA's 2016s and Dubai's 2015s were trading a little sluggishly.

"I've been saying for an eternity that those bonds are rich and no one should hold them," he said. "People are finally waking up to that."

Middle East in focus

The trader also noted that some paper from International Petroleum Investment Co. had come out and that Mubadala's 2021s were well off the 103.75 high print.

"There was some good lifting of sukuks earlier this morning, with Sharjah Islamic Bank above 105 and Abu Dhabi Islamic Bank now 103 mid," he said. "Decent size Qtel International traded this morning at 99.25, and it's now at 98.5 bid, 99 offered. So we've softened after the initial lifting. She's still a very thin market."

Qtel's 2021s finished the day trading between 98.75 and 99.25, up 2 to 3 points from Thursday's low prints.

Qatar rebounds

Front-end Qatar was "coming back from a very oversold place," a trader said.

The 2015s were at z-spread plus 200 bps bid earlier in the week and saw demand near 105 on Thursday, back to z-spread plus 150 bps. "That's helped, of course, by the rates move," he said.

Regional demand remained for Emaar Properties and Emirates airline while the Abu Dhabi sovereign was well bid, with the 2014s and 2019s closing 10 bps to 14 bps better, he said.

Meanwhile, Jordan's 2015s were seen in the low 92s.

"I think that might be able to hold around there," he said.

Afreximbank struggles

Looking to Africa, many names were struggling on Thursday, a trader said.

Cairo-based African Export-Import Bank, for one, has seen its 2016s widen by 190 bps on the month.

"We have not sighted many of the others recently printing in the market," he said.

Morocco's 2017s were trading at 100.75 bid, 102.75 offered on Thursday.

"That's definitely not one to short," he said.

Suhyup taps bookrunners

In other news on Thursday, Seoul-based lender Suhyup Bank - a unit of the National Federation of Fisheries Cooperatives in Korea - has mandated Bank of America Merrill Lynch, Citigroup, ING, RBS and Standard Chartered Bank for a roadshow starting Oct. 11, a market source said.

The roadshow will take place in Asia and Europe. An issue of notes may follow, pending market conditions.

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