Morning Commentary: Pockets of selling hit EM bonds; primary quiet as rates rise again

By Rebecca Melvin

New York, Feb. 5 – Emerging markets credit saw pockets of selling on Monday, while the primary market remained quiet against a backdrop of rising rates and lower stocks. Although still lower in early trading, U.S. stocks seemed to have found their footing after a steep sell-off on Friday.

“Tricky day,” a London-based trader said, pointing to “relentless” selling in ETF and random accounts in the usual suspects. But there was stability in other areas, including Saudi Arabia, which was broadly unchanged. Many sovereigns felt offered, including Oman, but that curve still has an overhang of shorts remaining in the mid-duration notes.

In the primary market, the Central & Eastern Europe, Middle East and Africa region was quiet, with a handful of deals on roadshows that were expected to price later in the week subject to market conditions.

Credit Bank of Moscow has an offering of dollar-denominated five-year notes potentially pricing on Tuesday, and Nostrum Oil & Gas plc is marketing a dollar-denominated offering of seven-year notes through Wednesday. Russia's Lukoil is also rumored to be bringing a deal this quarter.

In the Middle East, First Abu Dhabi Bank PJSC was marketing a possible five-year dollar-denominated Islamic bond on Monday with potential pricing on Tuesday.

Most U.S. stocks were lower but paring losses coming off a weak European session for stock markets. U.S. Treasuries were also lower, with the yield on the 10-year Treasury benchmark up last 0.06% at 2.855%.

The broader markets sold off steeply on Friday amid inflation worries as the closely watched U.S. non-farm payrolls report for January showed a better-than-the expected increase. The Dow Jones industrial average fell 665.75 points, or 2.5%, on Friday.

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