Investors seek out EM bonds; volatile session for Turkey, Russia; Kipco stands out

By Christine Van Dusen

Atlanta, Feb. 4 - Investors awoke from their risk-averse reverie on Tuesday and showed some interest in emerging markets assets, particularly long-dated and liquid benchmark bonds.

"A complete change of tone in EM this morning," a London-based analyst said. "Names moving tighter, despite the U.S. Treasuries move."

Sovereign bonds from Turkey and Russia tightened about 3 basis points on Tuesday morning while Russia-based OAO Rosneft's 2022s were active ahead of the company's earnings release.

"Gazprom and KMG are also proving popular," she said.

Overall, the session proved volatile for most names from Russia and Turkey, a London-based trader said.

"There was some decent real-money demand and Street-covering today," he said.

Russian eurobond spreads have been mostly flat so far this week, according to a report from UFS Investment Co.

"We expect the initiation of a tendency towards the narrowing of the spreads of Russian securities by results of the current week," the report said. "We note the potential towards the narrowing of spreads in pairs."

The report paired VimpelCom Holdings BV's 2022s with Mobile TeleSystems OJSC's 2023s and OJSC Novolipetsk Steel's (NLMK) 2018s with VTB Capital's 2018s.

"A slew of market participants were rather caught wrong-footed by the day we've had," a trader said. "I did say the low-beta space would be well-bid in line with a 2.58% 10-year U.S. Treasury market. However I failed to predict the steady and consistent demand for a host of bonds, be they low-, medium- or high-beta."

Still, volumes remained light, he said.

"The market is very thin," he said. "The Street seems to be short the same bonds and long the same bonds. Finding some bonds is nigh on impossible."

Bahrain firms

From the Middle East, notes from Bahrain firmed, the London-based analyst said.

"The bonds were up 25 cents to 50 cents," she said.

Otherwise, most names from the region were broadly unchanged in trading on Tuesday, a London-based trader said.

"The Street, as usual, is chasing the same bonds and offering the same bonds," he said. "We're seeing the Government of Dubai open unchanged."

Dubai Electricity and Water Authority's 2020s traded at 117 1/8 on Tuesday and ended up closing about 10 bps better, he said.

Aldar Properties PJSC's 2018s went through at 101.5625, the London trader said.

Later in the session, bonds from Dubai were very well supported, as were those from Bahrain, he said.

"Bahrain's 2023s are closing 16 bps better," he said.

Kipco trades up

The recent bonds from Kuwait Projects Co. (Kipco) - a $500 million issue of 4.8% notes due 2019 that priced at par - remained popular in trading, a trader said.

"It's trading at over 101 now," she said.

The notes priced at a spread of mid-swaps plus 314.4 bps with BNP Paribas, HSBC and JPMorgan in a Regulation S deal.

"Special mention to that one, closing 12 bps better today, now trading with a 101 handle," another trader said. "This market is crying out for some more supply."

Buyers seek Ukraine notes

Bonds from Ukraine had been expected to sell off by Tuesday but instead saw buying inquiries, said Svitlana Rusakova of Dragon Capital.

"The market realized that the positioning is very short already, leading to a quick spike in prices," she said.

Corporates saw some selling, she said, "though it was not broad-based."

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