Emerging markets bonds strengthen with Treasuries; market digests new supply from Mexico

By Christine Van Dusen

Atlanta, Aug. 9 – Latin American bond spreads were tighter and cash prices were higher on a solid Tuesday for emerging markets assets, as U.S. Treasuries rallied and the market digested a new deal from Mexico.

The emerging markets debt universe, overall, has “once again proven just how resilient it is,” a London-based trader said. “And interestingly enough, the market is shrugging off any negative oil price moves.”

Mexico’s five-year credit default swaps spreads closed the session at 138 basis points from 139 bps while Brazil's moved to 265 bps from 271 bps.

“Cash prices do underperform spread movement,” a New York-based trader said. “Latin American high yield finishes firmer on the session, with both Venezuela and Argentina higher.”

Venezuela’s 2027s closed at 47.25 from 47, PDVSA's 2017s finished at 73.45 from 73.25 and Argentina's Bonar 2024s closed at 117.05 from 116.90. The latter sovereign's 2026s moved to 109.875 from 109.45.

“Good volumes for the session, with overall better buyers seen, and solid two-way action on the new Mexico 2047s,” he said.

The sovereign on Monday priced a two-tranche issue of $2.76 billion notes due in 2026 and 2047, with a $760 million tap of the 4 1/8% notes due 2026 coming to the market at 108.831 to yield 3.042%, or Treasuries plus 145 bps.

The new $2 billion 4.35% notes due 2047 priced at 99.735 to yield 4.366%, or Treasuries plus 205 bps. The notes were talked in the 225 bps area.

Those notes were spotted Tuesday at 101.60 bid, 101.90 offered.

BBVA, BofA Merrill Lynch and Credit Suisse were the bookrunners for the Securities and Exchange Commission-registered deal.

Turkey, Russia in focus

Turkey and Russia were in the news on Tuesday as leaders of both countries met to discuss repairing their political and economic relationships after last year's downing of a Russian jet by Turkish forces.

“Today's talks are expected to boost trade relations,” the analyst said. “Syria was said to be an important matter on the agenda, and it will be interesting to see whether both countries’ standpoint will shift in the aftermath, given that Russia has been a clear supporter of Syria’s Assad, [whom] Turkey profoundly opposes.”

Meanwhile, though, trading of Turkish sovereign bonds was “pretty dull” on Tuesday, “with limited client flow,” a trader said. “Just the Street trading, with locals selling good size in the belly and short end today after the relief rally. But the Street was able to soak up bonds to cover shorts.”

This has flattened the curve by a few basis points, he said.

Two-way for banks

Bank bonds from Turkey saw two-way activity, with some real-money investors “raking profits, with retail adding smalls in the front end,” the trader said.

Asian investors were among the most active, “keen to add, given where outright yields are, which is leading to some curve normalization from very flat levels,” he said. “Corporates also trading well with small buying ongoing but valuations are on the rich side there.”

Oman trades up

In other trading, the 10-year notes that Oman issued in June – $1.5 billion 4¾% notes that came to the market at 99.827 to yield mid-swaps plus 320 bps – moved Tuesday to 103 bid, up 5½ points from the low, a trader said.

“The Qatari deals have likewise performed over time, as one would have expected,” he said. “The five-year is at Treasuries plus 103 bps bid; it came at 120 bps. The 10-year is at Treasuries plus 140 bps bid, came at 150 bps. And the 30-year is at Treasuries plus 190 bps bid, came at 210 bps.”

Demand was “decent” for Qatar bonds, with particular interest in perpetuals throughout Tuesday’s session, he said.

CBQ lags, supply dwindles

Commercial Bank of Qatar's 2021s were lagging, trading near 102.30, about a point off the highs seen four or five weeks ago, the trader said.

“With more redemptions just occurring and coming up the market once again finds itself needing supply,” he said. “So while there may be some anecdotal stories about diminishing liquidity in the GCC on the ground, the fixed income space trades very well.”

Overall, there's been a “lack of serious issuance” from the Middle East and North Africa, he said. “Although I feel September should be an active month. So many issuers have a free option to issue again ... Even credits with ratings and domestic issues or high oil dependence would be able to issue into this strength at very favorable levels.”

Nigeria sets size

In deal-related news, Nigeria set the size at $1 billion for its upcoming issue of notes, a market source said.

The deal would be part of the sovereign's $4.5 billion global medium-term notes program.

Nigeria is seeking bookrunners.

The sovereign in June held a roadshow for a dollar-denominated offering of notes via Standard Chartered.

Other details were not immediately available on Tuesday.

ADB to print tap

African Development Bank set the size at $250 million for a tap of its 1% notes due May 15, 2019, according to a company announcement.

RBS and BNP Paribas are the bookrunners for the deal.

The original $1 billion issue priced in April at 99.639.

The issuer is based in Abidjan, Ivory Coast.

Jamaica to issue notes

Jamaica is planning to issue new notes to fund a tender offer for its 2017 and 2019 notes, according to an announcement from the sovereign.

The new notes will be “an international capital markets transaction on the long-dated part of the curve,” the announcement said.

Citigroup is the billing and delivering bank for the tender offer. Citigroup and BofA Merrill Lynch are the dealer managers.

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