Brazil's OAS prints bonds; Latin American corporates stand out in trading; inflows rise

By Christine Van Dusen

Atlanta, Oct. 12 - Brazil's OAS Investments GMBH sold notes on a Friday that saw limited flows but wrapped up a week that was overall positive for emerging markets assets.

"Net-net, another fairly impressive week for this asset class," a London-based trader said. "It appears supply and obvious market gyrations remain the main risks going forward, as technically the market here feels OK."

Though volumes were somewhat light on Friday, the market was well supported.

"Flows today are a little muted," he said. "The majority of volume was going through Tuesday through Thursday."

Latin American corporates fared well on Friday, with bonds like Brazil-based Vale SA's 2042s tightening by 12 basis points and Petroleo Brasileiro SA's (Petrobras) 2040s and 2041s trading as much as nine points tighter, a New York-based trader said.

"Latin American corporates are experiencing another gap up higher and tighter with any decent offers continuously ripped off the screens," he said. "High-yield credits have moved higher with the market but have been very thinly traded due to liquidity as accounts hold most and are not selling. But they are clearly underperforming the high-grade sector."

Paper from Mexico's Cemex Finance LLC, for one, has moved up less than a point in the last few weeks, while high-grade Braskem Finance and Odebrecht have been outperforming, the trader said.

"Chile corporates, usually late to any rally party, have for the most part participated nicely recently," he said. "Colombia and Peru credits have also not seen those 'gapping higher' days like today but have performed quite admirably."

OAS sells notes

In its new deal, infrastructure company OAS Investments priced a $500 million issue of 8¼% notes due Oct. 19, 2019 at par to yield 8¼%, a market source said.

The notes were talked at a yield in the 8½% area.

BB Securities, Bradesco BBI, BTG Pactual, Deutsche Bank, HSBC and Itau BBA were the bookrunners for the Rule 144A and Regulation S deal.

TAQA, IPIC notes attractive

From the Middle East, long-dated paper remained popular on Friday, with Abu Dhabi National Energy Co.'s (TAQA) 2036s seen at 129 bid and International Petroleum Investment Co.'s (IPIC) 2041s trading at 136 bid, a trader said.

"The technicals on these bonds are just very impressive and while the all-in yields would look amazingly tempting if I were an issuer, it's clear most either don't need cash or simply don't have needs for long-term financing," he said.

Middle East deals perform

The recent deals from Qatar International Islamic Bank (QIIB), First Gulf Bank PJSC and Qatar Islamic Bank (QIB) - which all priced at par - performed well "without running away" on Friday, a trader said.

QIIB was seen at 100.15 bid, 100.25 offered, and First Gulf was trading at 100.25 bid, 100.35 offered. The recent notes from QIB were seen at 100.17 bid, 100.30 offered.

"I still think there are pockets of value in this market, however they are certainly getting fewer and fewer as they get picked off one by one," a trader said. "I continue to think non-bank issuance would be more than welcome from the region."

Dubai in focus

Five-year credit default swaps for Dubai were quoted Friday at 263 bid, 273 offered.

And front-end bonds from Dubai Electricity and Water Authority were particular standouts during the week, a trader said.

"This credit has steepened and looks in line, and in fact might be ready for the 2020s to head higher now versus the 2015s and 2016s," he said.

South Africa CDS down

From Africa, five-year credit default swaps for South Africa were trading down at 156 on Friday and the rand was firmer, he said.

"Zambia traded a few times today," he said. "We continue to see small nibbling on Senegal, Namibia and Nigeria. Egypt also felt supported, especially the 2020s."

And Ivory Coast closed up a few points, at 89 bid.

Recent Russian issues mixed

The recent $1.5 billion issue of 6.95% notes due 2022 from Russia's VTB Capital SA that priced at par opened Friday at 103.20 bid, 103.45 offered.

Barclays, Bank of America Merrill Lynch, Societe Generale and VTB Capital were the bookrunners for the Rule 144A and Regulation S deal.

And the $750 million 5.9% notes due 2022 from Russian steel and mining company OAO Severstal - also priced at par - started the session at 99.80 bid, par offered.

Citigroup, ING, JPMorgan and VTB Capital were bookrunners for the Rule 144A and Regulation S deal.

Ukraine bonds inch up

From Ukraine, sovereign eurobonds due 2016 were seen moving about 3/4-point higher while the 2017s pushed up about a half-point, said Svitlana Rusakova of Dragon Capital.

"Corporates were less active," she said. "We saw some demand in City of Kiev's 2012s at 99.75 bid, 100.50 offered and the 2015s at 91.50 bid, 93.50 offered."

Meanwhile, Ukreximbank's 2015s traded up to 96.5 bid, 98.0 offered, she said.

Inflows hit high

Inflows into emerging markets bond funds hit a 35-week high of $1.67 billion, according to data tracker EPFR Global.

"The risks associated with aggressive quantitative easing include inflation, asset bubbles and razor thin returns on the safer fixed income classes," EPFR said in a report. "But EPFR Global-tracked bond funds posted their second-biggest weekly inflow year-to-date during the week ending Oct. 10 as investors decided the risks posed to equities by global growth and weaker corporate earnings were more compelling."

'Hunt for yield' continues

Investors' appetite for emerging markets assets showed particular resilience during the week, EPFR said.

"Investors resumed their hunt for yield," EPFR said. "Flows into funds with local currency mandates again lagged those with hard currency mandates but still managed to post their biggest inflow since the third quarter of 2011."

Year-to-date, emerging markets bond funds have seen more than $41 billion in inflows.

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