Sri Lankan bank gives guidance; Uralkali faces legal woes; Poland looks to decrease risk

By Christine Van Dusen

Atlanta, Aug. 26 - Sri Lanka's National Savings Bank gave initial guidance for a dollar-denominated issue of benchmark-sized notes on a Monday made quiet for emerging markets by a holiday in the United Kingdom and concern about Syria.

U.S. Secretary of State John Kerry said there was no doubt that Syria had used chemical weapons on civilians. This, plus weak durable-goods data from the United States, pushed Treasuries lower on Monday.

Meanwhile, volumes for Latin American bonds were very light during the session and investors remained skittish, a New York-based trader said.

"Friday's rate move lower did nothing to soothe us, and we actually watched most of our non-spread credits trade lower and wider," he said. "Spread credits managed to tighten a bit on Friday and held that move today. But there is a true lack of conviction overall."

Corporate bonds from Peru joined those from Colombia, Mexico and Chile in trading "weakly and meekly," he said. "High-grade Latin American paper is starting once again to underperform and widen versus U.S. high-grade paper. That's something that should be paid attention to, even if it is somewhat liquidity-related."

Also on Monday, National Savings Bank set initial talk in the 7% area for its upcoming dollar notes, which are expected to carry a tenor of five years.

In late July, the Colombo-based lender held a roadshow for an issue of up to $1 billion of notes with bookrunners Barclays, Citigroup and HSBC.

Uralkali in focus

In other news, Russia's Uralkali was in the news after the potash producer's chief executive was arrested, market sources said.

Vladislav Baumgertner was arrested for allegedly abusing his power as the chairman of the former trade partnership between the two countries' potash markets.

Meanwhile, the company was looking to buy fertilizer distributors in other countries.

"We find this a positive strategic step for the company's future cash flows," UFS Investment Co. said in a report. "If Uralkali acquires its own supply network, investors should be reassured the management will manage this task."

The company's 2018 bonds were expected to move up in the medium term, though this could be hindered by Uralkali's legal woes.

Russian sovereign moves down

Looking at the Russia sovereign, the 2030 bond started the new week down about 2 bps "on neutral dynamics in the U.S. Treasury during the session in Asia," according to a report from UFS Investment Co.

Most Russian eurobonds were expected to put in a slightly stronger day on Monday.

This could be a better week for sovereign bonds if the United States' gross domestic product data and jobless claims numbers come in weaker than expected.

"Should statistics come in below expectations, Russian issues may close the week up," UFS said.

EM struggles

Emerging markets are struggling to contain a strong rise in bond yields and depreciation pressure on their currencies, according to a report from Erste Group Research.

"Many market participants see a link between the potential tapering of U.S. quantitative easing and the turbulence in emerging markets," the report said. "It seems, however, that U.S. central bankers have rebuffed any notion of the Fed considering international spillover effects when setting domestic monetary policy."

In response, Poland is planning to allow its national bank to buy and sell bonds beyond open market operations, the report said.

This is "an attempt to extend the instruments at the government's disposal to contain the potential impact of a sudden outflow of hot money," Erste Group said.

If this is taken as a signal that tail risks in Polish bonds have decreased, then "yield levels around 4.6% on the Poland 4% 2023 may offer a good entry point," the report said.

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