EM bond funds see more outflows; spreads widen; Middle Eastern perpetual bonds fare well

By Christine Van Dusen

Atlanta, July 12 - Emerging markets assets put in a steady, if slow, Friday of mostly buying to end a week that saw yet more outflows from dedicated bond funds.

About $1.33 billion flowed out of emerging markets bond funds during the week ended July 10, according to data-tracker EPFR Global. That's up from the more than $900 million reported during the previous week.

The majority of the outflows were from local-currency funds.

On Friday, the Markit iTraxx SovX CEEME ex-EU index spread was spotted at Treasuries plus 240 basis points, 5 bps wider than Thursday. The Markit iTraxx Crossover index spread - seen Thursday at 420 bps - on Friday widened by 2 bps.

Corporate bonds from Russia ended the week about 2 bps to 4 bps wider. Bonds from Turkey also moved out by Friday.

"Central and emerging Europe bonds remained stable following the affirmation from the Fed that policy will remain accommodative," Erste Group Research said in a report.

In trading from the Middle East, the recent perpetual notes that Dubai Islamic Bank priced at par were quoted on Friday at 98.37 bid, 99.37 offered. The perpetuals from Abu Dhabi Islamic Bank, which also priced at par, were spotted Friday at 100¾ bid, 101¾ offered.

"Perpetuals are ticking along nicely," a London-based trader said. "Middle East and North Africa markets continue to stabilize and trade pretty well. Liquidity is obviously poor, given the time of year and the arrival of Ramadan, but there is activity."

The 2020 notes from Bahrain Telecommunications Co. traded Friday between 93.31 and 94.31, about 4 bps tighter on the week.

"A few more long-term players are dipping their toes, picking up bonds for portfolios at what look like attractive entry points," a trader said. "Of course, they will look poor if the 10-year Treasury hits 3%, but for the time being the 2.65% to 2½% range is bringing out buyers and short covering."

SECO in focus

The 2017 notes from Saudi Electricity Co. (SECO) traded Friday at 101.62 bid, 102.37 offered after Thursday's levels of 101½ bid, 102½ offered, a trader said.

The company's 2022s - seen Thursday at 101¼ bid, 102¼ offered - were quoted Friday at 102 bid, 102½ offered.

The 2023s moved to 96.62 bid, 97.62 offered on Friday after coming in at 96.37 bid, 97.37 offered on Thursday.

And SECO's 2043s on Friday were seen at 90½ bid, 92 offered. On Thursday the notes were quoted at 90 bid, 91 offered.

Nigeria notes tick up

Nigeria's recent issue of 5 1/8% notes due 2018 that priced at 98.917 traded Friday at par bid, 100¾ offered after Thursday's levels of 99¼ bid, par offered, a trader said.

The sovereign's second tranche - $500 million 6 3/8% notes due 2023 that came to the market at 98.193 - was quoted Friday at par bid, 101 offered. On Thursday the notes were seen at 99¼ bid, par offered.

The proceeds will be used to finance infrastructure investments.

Naspers sells notes

On Thursday, South Africa-based mass media company Naspers Ltd. priced $750 million 6% notes due in 2020 at par to yield 6%, a market source said.

The notes, issued through indirect wholly owned subsidiary MIH BV, were talked at a yield in the low-6% area.

Barclays, Citigroup (active) and JPMorgan (passive) were the bookrunners for the Rule 144A and Regulation S deal.

The proceeds will be used for general corporate purposes, including future acquisitions and the repayment of outstanding debt, according to a company announcement.

Sellers for Ukraine

By the end of the week, bonds from Ukraine saw some selling, said Svitlana Rusakova of Dragon Capital.

"In the sovereign sector Ukraine's 2014s and 2023s were offered," she said. "The 2020s and 2021s seemed well bid."

Other corporates received support, she said, rising an average of a ½ point toward the end of the week.

Russian bonds gain

Taking a closer look at Russia, bonds have been gaining in pricing on the back of US Treasury growth, according to a report from UFS Investment Co.

"We expect continued growth in Russian eurobonds today on both the uptrend in debt markets and further narrowing of spread to non-risk bonds," the report said.

The ruble debt market is consolidating, UFS said, and primary market activity is increasing.

"Trading volumes were quite large yesterday," the report said.

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