Market quiet on mixed U.S. economic data; KDB prices; Montenegro, Lithuania set roadshows

By Christine Van Dusen

Atlanta, Aug. 26 - The mix of good news and bad news on the U.S. economy Thursday left Treasury yields largely unchanged and led to thin volumes and a stopped-up pipeline of new issues from emerging markets.

The good news: The number of first-time filers for jobless claims in the United States saw its first decline in about a month, and second-quarter foreclosures dropped for the first time since 2006. The bad news: The number of jobless claims is still high, and the drop in foreclosures is expected to rise again due to an increase in the number of delinquent homeowners.

As a result, the market opened "strong" on Thursday, a London-based trader said, but "weakened" during the afternoon to finish the European session "pretty much unchanged."

Overall the market was "pretty quiet," a Connecticut-based market source said. "There hasn't been a whole lot going on."

With equities "bouncing around, and Treasuries bouncing around, it's been a very quiet day," he said.

The tone "certainly felt a little bit weaker," said Luz Padilla, portfolio manager for the DoubleLine emerging markets fixed income fund. "But there's just been an incredible run for a lot of our sovereigns. They're just basically giving a little bit of that back.

"Certainly the concerns about the U.S. with weaker data and with Europe as well, along with the potential for new issues coming in September, has all added up to people taking a step back and just sitting on their hands for a little bit."

Pemex 'not great'

The mixed data had an impact on some emerging economies, including Mexico, which saw the yield on its peso-denominated bonds fall for the fourth day in a row, a source said.

One Mexican issuer that was struggling against the negative trend on Thursday was Mexico City-based petroleum company Petroleos Mexicanos SAB de CV (Pemex), which on Wednesday priced a $1 billion reopening of its 6 5/8% notes due June 15, 2035 at 108.339 to yield 5.975%, or Treasuries plus 239.7 basis points.

"It's doing OK. It's not great. It started the day off a lot better," Padilla said. "But it's still within the issue price."

Several market sources on Wednesday had been surprised to see Pemex bring its deal during the summertime doldrums and at a time when concern about the U.S. economy was high. But it was "not necessarily altogether unexpected," Padilla said. "The cost of funds for a lot of these companies and countries is still pretty affordable. I would imagine they'd want to come out and issue as much as they can."

The book was 2.5 times oversubscribed, "but I hear that was a reverse inquiry. So if $1 billion was issued and $500 million pre-placed, then it's more like four times oversubscribed, which is not insignificant."

KDB prices notes

Also sneaking a deal in during the doldrums was Seoul-based state-owned lender Korea Development Bank (KDB), which late on Thursday priced CHF 200 million 1¾% notes due 2014 at 100.232 to yield 1.69%, or mid-swaps plus 200 bps.

BNP Paribas and Credit Suisse were the bookrunners, a market source said.

Proceeds will be used to repay maturing foreign debts or extend foreign currency loans.

In other new-deal news on Thursday, Montenegro mandated Credit Suisse and Deutsche Bank for a possible issue of notes that will be marketed on a European roadshow starting Tuesday, a market source said.

Also on Thursday, the Republic of Lithuania mandated Barclays Capital, HSBC and RBS to arrange investor meetings, a market source said.

The roadshow will commence Monday and travel through Europe.

And Russian lender Alfa MTN Issuance Ltd. (Alfa Bank) has mandated Deutsche Bank and UBS for a potential offering of notes, a market source said.

The day also saw news from Abu Dhabi-based hotel developer Tourism Development & Investment Co., which could price an international bond offering sometime in the fourth quarter of this year, a market source said.

The government-owned company had been expected to do a deal via Standard Chartered, Citigroup and BNP Paribas by the end of July.

LatAm could heat up

The Connecticut-based source expects that after Labor Day volumes and new issuance will pick up again.

"That's a good guess," he said. "I would assume with holiday schedules and vacation schedules that's a reasonable assumption."

Another market source agreed.

"I think there's going to be significant issuance out of Latin America, maybe less so out of Central and Eastern Europe and an equal amount, plus or minus, out of Asia," the source said.

"We could see some Chilean corporates coming, Brazilians, and maybe something out of a Colombian state-owned company. Peru also may do a deal."

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.