Emerging markets quiet; new issues may follow U.K. long weekend; Venezuela, PDVSA bid higher

By Rebecca Melvin

New York, Aug. 24 – Emerging markets were quiet Thursday as an upcoming U.K. bank holiday and a lack of trading catalysts left investors eyeing the annual gathering of central bankers and economists starting in Jackson Hole, Wyo.

The week has been slow and uneventful in the Central & Eastern Europe, Middle East and Africa region, but there was some speculation that new issuance could be on tap for next week following the long holiday weekend.

Speculation about a possible Pakistan sukuk or conventional bond joined a growing list of potential issuers in the Middle East region anticipated to come to market soon. The possible issuers include Oman, Bahrain, Turkey, Egypt, Qatari banks and Jordan, in addition to Pakistan, market sources said.

Pakistan is being eyed for a $500 million to $1 billion Islamic or conventional bonds, denominated in dollars. Further details on the Pakistan issue were not immediately available. Last year, there was similar market talk ahead of a $1 billion 5½% sukuk that Pakistan eventually priced in early October. The five-year Islamic bonds (B3//B) came at par via Citigroup, Deutsche Bank, Dubai Islamic Bank, Noor Bank and Standard Chartered Bank as bookrunners of the Rule 144A and Regulation S deal.

“There should be a good mix of banks and sovereigns, but we don’t know until it hits,” a London-based trader said about possible upcoming issuance.

Spreads on Ahli Bank QSC’s bonds were a few points tighter on Thursday. The Qatari-based bank’s 3 5/8% notes due 2021 were seen a point tighter at a price of 99½ bid, 100 offered, while the bank’s 3½% notes due 2022 were seen 2.5 points tighter at a price of 98.31 bid, 98.81 offered, according to a market source.

Venezuela and Petroleos de Venezuela SA bonds were catching a bid on Thursday amid relief that U.S. trading restrictions on Venezuela debt may not be as onerous as first thought and as investors were reinvesting coupon payments made on the Venezuela 12¾% notes due 2022 and the PDVSA 12¾% notes due 2022, a Connecticut-based trader said.

Venezuela’s 12¾% notes due 2022 were trading at 47¼ bid, 48¼ offered on Thursday, which was up from 45½ bid, 46½ offered last Friday. PDVSA’s 8½% notes due in November were back up to 92½ bid, 94½ offered, which was up from 90½ bid, 91½ offered last Friday.

Meanwhile, the PDVSA 12¾% notes due 2022 were at 47 bid, 48 offered, which was up from 45½ bid, 46½ offered on Friday, and the PDVSA 9¾% notes due 2035 were trading at 37½ bid, 38½ offered, the trader said.

“The market is not taking the sanctions seriously enough and the possible reaction of government to them. I think things could get much worse before they get better,” the trader said.

Whatever the sanctions turn out to be, they “will cripple the ability of the government to finance itself,” he said.

On Wednesday, the Venezuela/PDVSA credit curve turned lower after reports that the Trump administration is considering restricting trading in Venezuelan debt as part of a plan to hurt Venezuelan President Nicolas Maduro, who is seen as steering the country toward dictatorship.

Banning U.S.-regulated financial institutions from buying and selling dollar-denominated bonds issued by Venezuela is seen as a way to hurt the regime without hurting the people of Venezuela.

Vice-president Mike Pence spoke to a group of Venezuelan expatriates in Miami on Wednesday and hinted economic sanctions will be coming soon.

On Thursday, Pence tweeted, “@POTUS & I will continue the fight for Venezuela’s liberty & I believe Venezuela will once again be free.”

Market players were turning their attention to hints about monetary policy that may be forthcoming at Jackson Hole.

Both European Central Bank President Mario Draghi and U.S. Federal Reserve Chairwoman Janet Yellen were slated to deliver remarks at the symposium on Friday.

Investors will be watching to see if comments point to policy adjustments. For example, whether Draghi intimates that he is concerned about the strength of the euro currency which stands 12% higher against the dollar so far this year.

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