Banco Safra prints bonds as investors buy, then sell EM paper; trading volumes still thin

By Christine Van Dusen

Atlanta, Aug. 4 - Brazil-based lender Banco Safra SA sold notes as investors, feeling relatively comfortable with the world's negative economic picture, started out on Thursday by buying emerging markets debt but later began to slowly sell off sovereign bonds.

"Yesterday, fear was buying Europe, Middle East and Asia bonds. Today, it's greed," a trader said. "The more benign external picture is setting off a wave of buying this morning."

Among the names getting snapped up early in the day were South Africa's FirstRand Bank, Abu Dhabi's First Gulf Bank PJSC, United Arab Emirates-based Emirates and Russia's Sberbank and Lukoil.

But as the day wore on, some selling was seen.

"What's interesting on our side is that EM fixed-income funds have received inflows during the last week and the Street had been carrying very lean balance sheets with summer volumes," a Connecticut-based trader said. "When inflows started to be put to work, the dealers were quick to buy back paper. Spreads tightened in to levels where I thought it was overdone, particularly for the BB-rated names like Brazil and some of the African sovereigns."

During the last couple of days, he said, more money was being put to work and dealers "who were close to flat for seasonal purposes got taken out of paper," he said. "Now that we're seeing this considerable sell-off in the equities market and de-risking globally over 48 hours, the EM paper both on the corporate and sovereign sides has held in better than they should because of technical overhang from last week."

On Thursday, the dealers started to get hit and started selling sovereigns, like the long end of Brazil and other high-beta names that had been performing well, he said.

"We're starting to see the tables get turned here now," he said.

Banco Safra sells notes

In its new deal, Brazil-based lender Banco Safra priced a R$800 million issue of 10¼% notes due 2016 at par, a market source said.

The notes priced at the lower end talk, which was set at 10¼% to 10 3/8%.

Banco Safra, JPMorgan and UBS were the bookrunners for the Rule 144A and Regulation S deal.

The notes will be payable in dollars, and proceeds will be used for general corporate purposes.

"That's still trading modestly above the issue price," a trader said. "Last we saw it, it was just above par at 100.15 or 100.45."

Volumes remain light

Venezuela was about 2½ points off the highs, as was Argentina, the Connecticut trader said.

"We're seeing bonds coming out of the Philippines," he said.

Volumes, however, remain light.

"That's something to be careful of," he said. "If on Friday we get another considerable sell-off, dealers won't want to take anything home and we could have 15 to 20 bps of widening tomorrow and over the weekend."

He also noted that some of the European dealers who've had exposure to Spain, Greece and other troubled sovereigns may soon sell off other bonds that have outperformed so as to cover margin calls or losses.

"We did start to see a few of the dealers in Europe quick to reduce their balance sheets," he said. "That could definitely spill over during the next two or three trading days, where we'll see a weakness we haven't seen in a while."

MENA widens

In trading, the Middle East and North Africa widened on Thursday.

"But to see high-betas like Dubai only 10 bps wider is still a major outperformance versus other asset classes," another trader said.

Also from the region, First Gulf Bank's recent issue of 3.797% notes due 2016 - which came to the market on July 26 at par to yield mid-swaps plus 225.7 bps - were seen at 101.18 bid, 101.33 offered early in the New York trading day. Later in the session, the notes were seen at 101.13 bid, 101.28 offered.

Citigroup, HSBC and Standard Chartered Bank were the bookrunners for the Regulation S notes.

Looking to Lebanon, spreads had a good start on Thursday and liquidity remained at the long end.

"With a bid-offer on the 22s yesterday tighter than most so-called E.U. core markets, Lebanon continues to be liquid and tradable," a trader said.

The 2022s were trading at 99.85 bid, 99.95 offered on Thursday after pricing on July 28 at 99.195.

Emirates trades up

Meanwhile, the recent 5 1/8% notes due 2016 from Dubai-based Emirates airline were quoted Thursday at 100.65 bid, 100.95 offered.

The notes priced June 1 at 99.904 via Deutsche Bank, Emirates NBD, HSBC and Morgan Stanley in a Regulation S-only deal.

And Abu Dhabi National Energy Co.'s 2014 dollar notes were seen at 106.43 bid, 106.68 offered.

Looking to Africa, better buying was seen for Nigeria's GTB Finance BV and Cairo's African Export-Import Bank (Afreximbank). The latter company on July 20 priced an issue of 5¾% notes due 2016 at par. Those notes were trading Thursday at 102.37 bid, 102.87 offered.

"Even a few bids get hit in Africa late in the day as the global markets turn south," a trader said. "Ghana is down at 114.25 ... got to be very wary of liquidity in this part of the world."

In other trading, Kazakhstan-based BTA Bank's 2018 dollar notes managed to rally a half-point to 84, a trader said. "BTA's 2025 dollar notes continue to slide, though."

Turkey in focus

In other deal-related news, market-watchers were whispering about possible notes from Turkey's Turk Exim Bank.

The Turkey sovereign opened about 10 bps tighter on Thursday as the central bank lowered the benchmark interest rate to a record low of 5¾%.

"CBT also narrowed the rate corridor by lifting the overnight borrowing rate to 5%," a London-based trader said. "We think this action is negative for credit and could lead to further pressure on banks' local currency liquidity ... the market doesn't like it."

Still sovereign bonds managed to rise 1/4-point to 1/2-point on the day.

"Corporates there are still lagging," another trader said.

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