Bad news about Greece's budget leads to mixed day for EM; prices widen; selling seen

By Christine Van Dusen

Atlanta, Oct. 3 - With the news that Greece is unlikely to meet its budget targets, performance for emerging markets assets was mixed on Monday, with poor liquidity, lower prices, moderate flows and some late-in-the-day selling while the market attempted to stabilize.

There was a "heavy tone and thin liquidity for the most part," a trader said. "Flows were moderate."

It wasn't a "barnstorming start" to the fourth quarter, another trader said.

"In some places it's been quite an impressive performance, with the Markit iTraxx SovX spread at 363 basis points, just 10 bps wider on the day and things like Russia's 2030s barely a half-point lower."

But that doesn't tell the whole story, he said.

"The whole story is the ongoing demise of illiquid risk," he said. "Even good-quality names like Alfabank now yield over z-spread plus 900 bps, which kind of sets a floor for what you need to get paid elsewhere."

Most prices were marked 10 to 20 bps wider at the open.

"Flows remain the same, with retail nibbling at high-quality paper while retail is looking to exit illiquid assets," a London-based trader said. "Fortunately, not many people are looking to see into this, as right now the reduced liquidity is scaring people away."

Bonds from the Middle East were trading heavy, a trader said during the European morning.

"It's a tricky start to the new quarter and month with liquidity poor and bids defensive," a trader said during the European morning. "The perceived safe-haven status of the Middle East region is taking a bit of a beating of late with more and more credits and bonds being picked off. More and more bonds are trading heavy, which makes sense given the market - you sell what you can and what you have."

At the open, only a few sukuks were holding up, he said.

"Higher yielders like Dubai and Kipco are still trading very heavy," he said, noting that Dubai's 2020s were 30 bps to 40 bps wider on the day. "Emirates and Emaar Properties are well offered, having held in pretty well through September ... one by one the bonds and credits that keep holding get taken off that list."

QIB widens, SIB tightens

Qatar Islamic Bank finished the session 7 bps wider, HSBC Bank Middle East 5 bps wider, Ras-al Khaimah 15 bps wider while Sharjah Islamic Bank was 20 bps tighter and First Gulf Bank was 6 bps tighter.

Buyers were seen for Dubai Water and Electricity Authority's 2021s.

"If - and it's a big if, I know - we do get a rally, there are two lines of thinking on the sukuks," he said. "Either they will outperform because there are not as many loose bonds around, or alternatively they will underperform because there was not the massive sell-off of paper and there will come some supply, like Bahrain, Tamweel and others, I'm sure."

Gazprom improves

Gazprom and KazMunaiGaz started the day wider, the trader said.

"But net-net, it's much tighter from a week ago," he said.

Ukraine continued to have a weak showing.

"As the market becomes a function of liquidity, Ukraine underperforms," he said. "It's really only the Ukraine 2021s, with their residual short base, that are offering any sort of real liquidity."

Looking to Turkey, the sovereigns started out softer at the longer end, he said.

"But compared to other sectors this is still quite resilient," he said. "Retail has had some interest in Isbank and Yuksel Insaat AS early on in small amounts, but generally it's a quiet day for corporates so far."

Dar Al-Arkan in focus

One trader was keeping a close eye on Dar Al-Arkan International Sukuk Co. II.

"Plenty of sellers emerge in the high 80s," he said. "Actually, is it plenty of sellers, or the same orders going around the market? I don't know, however this bond is now 15 points off the high. Versus some Ukrainian and Russian higher-yielding corporates this is actually in line or slightly better than one would have expected. Still, nonetheless, it's been a painful few weeks for these bonds."

He also saw some widening on Qatar and Abu Dhabi sovereign paper.

"Both 2019 bonds are now 60 bps wider over the month and they still feel like they are being leaned on," he said.

Oschadbank sees selling

After the weak open, the market stabilized significantly, he said.

"Retail [investors] have been very good buyers of corporate risk," he said. "It's just off-the-run bank names that have been hit."

He pointed to Ukraine-based OJSC Oschadbank. "Retail [investors] are selling," another trader said.

Names from Africa, meanwhile, were illiquid and heavy, a trader said.

Senegal's 2021s were seen trading at 96.25 bid, 98.75 offered while Morocco's 2017s were seen at par bid, 102 offered and its 2020s were trading at 99 bid, 91 offered.

QIIB, Asya Katilim eye sukuks

Qatar International Islamic Bank has mandated Qatar National Bank, HSBC and Standard Chartered for a dollar-denominated offering of five-year sukuk notes, a market source said.

No other details were immediately available on Monday.

And Turkey-based lender Asya Katilim Bankasi AS is planning a $300 million issue of sukuk notes, a market source said.

Issuance is likely to occur by the end of the year.

© 2015 Prospect News.
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