EM bonds remain solid even as stocks rally; notes from Latin America and Asia in demand

By Christine Van Dusen

Atlanta, Aug. 7 - Emerging markets assets managed to post a positive Tuesday, even with the summertime slowdown and thinner volumes as investors either flocked to stocks or headed for the beach.

"Risky assets continue to trade well, albeit on low summer volume," according to a report from Barclays Capital. "Given the quiet backdrop in terms of economic data, markets are likely to be driven by euro area-related headlines."

The JPMorgan Emerging Markets Index Plus spread on Tuesday was at Treasuries plus 299 basis points, tighter by 4 bps.

"I'm basically watching the ongoing rally in the other global markets," said Nick Chamie, head of emerging markets research for RBC Capital Markets. "I think there's been a fear among investors that they might miss a rally if the European Central Bank steps on the gas. So I think they're going to continue to try to take up some, or reduce the amount of underexposure."

The backdrop is a good one for emerging markets debt, given that bond fund inflows have been strong, particularly for those funds with a hard-currency mandate, he said.

"I would imagine fund managers still have a lot of cash to put to work in EM hard currency," he said.

Bonds from Latin America and Asia seem to be sparking the most interest, he said, with quasi-sovereign and corporate names among the favorites.

So although emerging markets issuers have tended to take the late summer off, this year the new issue pipeline is expected to continue moving this month, if only at a trickle.

"I would expect issuance to slow, but probably not die out completely because there's still demand there for it," he said.

Meanwhile, emerging markets are facing their share of growth concerns.

"Against the backdrop of improved risk appetite, global economic activity remains subdued. In EM, economic growth, with only a few exceptions - China, Indonesia - continues to slow," Barclays said.

Abu Dhabi notes active

In trading, the recent issue of $750 million 3% notes due 2019 from National Bank of Abu Dhabi that priced at 99.731 was active in trading on Tuesday.

The notes opened at 99.90 bid, par offered, then traded at 99.95 bid, 100.05 offered.

The yield was set at mid-swaps plus 180 bps for the Regulation S-only deal via bookrunners Citigroup, JPMorgan, Standard Chartered and National Bank of Abu Dhabi.

Later, the notes were seen at 99.97 bid, 100.10 offered.

Coazucar notes move higher

Also garnering attention in the secondary market were the recent 6 3/8% notes due 2022 from Peru's Corporacion Azucarera del Peru (Coazucar).

The company, part of agribusiness holding company Grupo Gloria, priced a $325 million issue of the notes at 99.091 to yield 6½% with bookrunners Bank of America Merrill Lynch and Citigroup in a Rule 144A and Regulation S deal.

On Tuesday, the notes were quoted at 103.45 bid, 104.10 offered.

Latin American corporates up

Taking a longer look at Latin America, most corporate names moved higher and tighter on Tuesday after making similar moves on Monday, albeit on little volume, a New York-based trader said.

"All the Brazil, Peru and Colombia high-grade paper grinded higher, particularly with the more liquid names," he said, pointing to names like Gerdau Holdings, Odebrecht SA and Banco do Brasil SA.

Paper remained scarce for JBS Friboi, Hypermarcas, Minerva and Fibria.

"They were all higher," he said.

Inventories light

Buyers of Latin American paper remain "unrelenting," the New York trader said.

"Dealer inventories are light and dealers are not quick to show paper they don't have," he said. "And the paper they do have they are offering at levels they are comfortable with."

Volumes for Petroleo Brasileiro SA (Petrobras) paper continue to fall as the bonds tighten, he said.

"The long end is now at 230, in from north of 252 last Monday," he said.

Brazil corporates in focus

Brazil's Marfrig Alimentos moved lower on Tuesday, the New York trader said.

"Marfrig paper continues to be the clear and uncontested elephant in the room, moving lower to the mid-70s on very little Street volume," he said. "Looks as though we need more than a few more months to see the depths of gains and developments the company can make in a number of strategic areas."

Meanwhile, Brazil's OGX Petroleo e Gas Participacoes SA was still trading in the mid- to high-80s range.

"Daily volume is thorough and consistent," he said.

Sellers were seen for Braskem's 2041 bonds, while buyers were noted for the company's 2022 bonds.

© 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.