EM ends volatile week on better footing; investors watch Russia; perpetuals underperform

By Christine Van Dusen

Atlanta, Jan. 9 – Emerging markets assets recovered some losses on Friday to finish a volatile week that saw many names struggle before rebounding as oil prices and U.S. Treasuries dipped then recovered and economic data from the euro zone came in below expectations.

“We also saw another week of outflows from emerging markets bond funds, $500 million this time,” a London-based analyst said.

Investors were also watching Russia, which continued its conflict with Ukraine – with a possible meeting of presidents next week – and was downgraded by Moody’s Investors Service and was expected to get similar treatment from Fitch Ratings on Friday.

“We don’t think a downgrade will have much of an impact,” he said. “Standard & Poor’s upcoming downgrade to high-yield is more of a concern. The outcome of that review is much less certain.”

Still, Russian bonds were able to rally at the end of the week, though credit default swaps spreads were still 60 basis points wider than last week’s close, he said.

“The only real liquidity in Russia is in the sovereign or in oil and gas names,” he said. “Russian corporates were 58 bps wider on average on the week. A real mixed bag.”

Euro-denominated paper fared better while banks were 101 bps wider, on average, he said.

The Philippines curve was unchanged, with the new 3.95% 2040s that priced this week at par trading between 102 and 102¼, a trader said.

The new notes from Indonesia – 4 1/8% notes due in 10 years that priced at 99.393 and 5 1/8% notes due in 30 years that priced at 98.867 – tightened on Friday.

The 2025s were seen at 99¾ bid, par offered and the 2045s at 99 7/8 bid, 99¾ offered.

“The secondary curve was under pressure, as the new deal came cheap,” he said.

Asian credits lag

Many Asian credits lagged on Friday, with high-grade cash bonds unchanged as the market digested Beijing-based Huarong Asset Management Co. Ltd.’s $3.2 billion of notes in three tranches due 2018, 2020 and 2025.

The $600 million three-year notes priced at Treasuries plus 270 bps after talk was set at 280 bps.

The $1.2 billion notes due 2020 priced at Treasuries plus 310 bps, following talk of 320 bps.

And the $1.4 billion notes due 2025 priced at Treasuries plus 360 bps, following talk of a spread of 370 bps.

“Trading was mostly focused in the five-year and 10-year tranches, which opened 2 bps to 5 bps tighter,” a London-based analyst said. “Profit-takers quickly emerged, taking bonds back to reoffer. And then we rebounded, with the five-year last up at 301 bps and the 10-year at 348 bps.”

Credit Suisse, Standard Chartered Bank and Wing Lung Bank were the joint global coordinators. ABC International, BOC International, Bocom International, CCB International, China Merchants Securities, Citigroup, Credit Suisse, DBS Bank, Deutsche Bank, HSBC, ICBC, Jefferies, Morgan Stanley, Standard Chartered Bank and Wing Lung Bank were the joint bookrunners and joint lead managers for the Regulation S deal.

“The rest of the China space was generally unchanged, besides high-grade property names, which traded off 3 bps to 8 bps,” the analyst said. “The Kaisa Group complex was unchanged to a half-point higher, with retail investor demand.”

Euro paper strengthens

In other trading during the week, euro-denominated bonds from Central and emerging Europe were strong performers during the week as investors looked forward to the increasing likelihood of quantitative easing, a trader said.

Romania benefitted, but high-yield names underperformed investment-grade, the analyst said.

Middle East in focus

From the Middle East, perpetual bonds underperformed, a trader said, ahead of new supply, including Dubai Islamic Bank PJSC’s expected issue of dollar-denominated and benchmark-sized Islamic notes.

The bank set out on Thursday for a roadshow with Al Hilal Bank, Dubai Islamic Bank, Emirates NBD Capital, HSBC, National Bank of Abu Dhabi, Noor Bank, Sharjah Islamic Bank and Standard Chartered Bank for the Regulation S deal.

“A few of the bigger local accounts, it feels, are still adding high-grade names. Good size in Qatar, Qatari Diar and some Abu Dhabi names went through early doors,” he said. “I suspect further stability and spread performance will bring out some supply. Not entirely sure who will join the line-up after Dubai Islamic Bank. But some of these credits could do with a new issue to refresh their curves.”

Lat-Am quiet

Many Latin American bonds were quiet on Friday morning and ended the session mostly unchanged from Thursday, a New York-based trader said.

Names like Brazil-based Odebrecht SA were better offered.

“Dealers have little appetite to hold much, as buyers are few and gappy markdowns are becoming quite painful,” he said.

Meanwhile, banks from Colombia moved a little bit higher, with buyers quickly outpacing sellers.

© 2015 Prospect News.
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