Emerging markets weaken for second day; Egypt widens; Medco Energi, 21Vianet price notes

By Rebecca Melvin

New York, Aug. 10 – Emerging markets were weak for a second straight day on Thursday against a backdrop of lower global markets as safe-haven assets like U.S. Treasuries rose again over fears tied to bellicose rhetoric between the United States and North Korea.

“The market is pretty heavy and well offered,” a London-based EM-focused trader said via email. Spreads widened out for many regions, with Egypt sovereign credit widening an outsized 12 to 14 basis points, while Oman widened 5 bps, and Qatar was wider by 3 bps to 5 bps.

Exchange-traded funds were also being sold. iShares J.P. Morgan $ Emerging Markets Bond ETF moved lower by $0.48, 0.42%, to $114.76 on Thursday and was also down on Wednesday from a high market of about $115.56 early in the session.

In the primary market, a couple of Asian markets were priced, but other regions were quiet. Indonesia oil company PT Medco Energi Internasional Tbk. priced $300 million of 8½% eight-year notes to yield 8¾%. The notes priced tighter than initial talk for a yield of 8 7/8%.

The securities were priced via bookrunners Citic Bank, Credit Suisse and JPMorgan and are non-callable for three years.

Also pricing on Thursday was China internet services provider 21Vianet Group Inc., which priced $200 million of three-year notes at an interest rate of 7%. The Regulation S notes are non-callable for two years until Aug. 17, 2019.

They were sold by joint bookrunners Barclays, China Industrial Securities International, Credit Suisse, Orient Securities (Hong Kong) and VTB Capital.

Geopolitical tensions definitely took a toll on Thursday, a market source said. Those tensions were tied to a ratcheting up of remarks by U.S. President Donald Trump and North Korean officials over potential military conflict. Trump did not back away from his “fire and fury” warning but said on the contrary that the words may not have been tough enough since they did not stop North Korea from threatening the United States.

North Korean officials including supreme leader Kim Jong Un have scoffed at Trump in state media reports saying that the U.S. leader has yet to grasp the gravity of the situation and that “sound dialogue” is not possible with him.

Emerging market players were also watching economic data including the U.S. Producer Price Index, which notched an unexpected fall in July. The Labor Department reported that the producer price index for final demand slipped 0.1% last month as costs decreased for services and energy products.

In addition, U.S. initial claims for state unemployment benefits increased 3,000 to a seasonally adjusted 244,000 for the week ended Aug. 5, according to another report of the Labor Department.

Global stocks fell, including the U.S.-based, tech-heavy Nasdaq Stock Market, which closed down 125.46 points, or 2.1%, to 6,216.87. The CBOE Volatility index spiked 44% to 16.04 on Thursday and is up 67% on the week, although still low relative to the historical average of about 20.

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