Midday Commentary: EM notes narrow; Turkey, Russia stand out; Slovenia deal gets attention

By Christine Van Dusen

Atlanta, April 4 - Emerging markets bonds headed into Friday with tighter spreads and investor sentiment buoyed by better payrolls and unemployment data from the United States.

"Concerns at the beginning of the week that the start of the second quarter would see sellers have proven unfounded as EM enjoyed a strong week with tightening across the board," a London-based analyst said.

Particular standouts on Friday included bonds from Turkey and Russia, with the latter helped by a lack of significantly negative headlines related to tension with Ukraine.

"That doesn't mean [the headlines] have stopped," the analyst said, noting that the United Kingdom's foreign secretary has said the European Union should prepare for more sanctions against Russia.

"Nonetheless, the West appears to have all but accepted the annexation of Crimea, and the remaining tension is focused on Russia's withdrawal of troops, which is moving far slower than the West would like," she said.

Also contributing to the tightening for Turkey and Russia: There was a lack of supply and investors were putting money back to work, she said.

"Investors have been buying the Russian complex, shrugging off macro concerns," she said. "Russian banks end the week 41 basis points tighter on average, with some names now only circa 20 bps wide of pre-Crimean crisis levels."

Russian Agricultural Bank's 2021s tightened about 104 bps, she said.

"VTB Bank bonds generally underperformed this week," she said. "We still think VTB 2017s appear unfairly cheap, trading wide of the 2018s and 2020s."

Russian corporates, overall, were about 30 bps tighter on average.

Turkey banks tighten

Taking a closer look at Turkey, banks continued to put in a strong showing by the end of the week, following election results and a lift of the ban on Twitter, the analyst said.

The banks tightened an average of 40 bps.

"Isbank enjoyed a solid week, circa 50 bps tighter, while Bank Asya was the clear underperformer after very strong performance last week," she said.

Croatia lags

Elsewhere in emerging Europe, Croatia's bonds underperformed, with the 2024s moving 8 bps wider, a trader said.

And the new two-tranche issue of €2 billion notes due 2017 and 2021 from Slovenia attracted attention during the week, drawing a combined final book of €9.5 billion.

The deal included €1 billion 1¾% notes due in 2017 that priced at mid-swaps plus 115 bps.

The €1 billion 3% notes due 2021 - which priced at 99.478 to yield mid-swaps plus 173 bps - were 20 bps tighter on Friday.

"We saw the secondary curve re-price as well," she said.

Barclays, Commerzbank, HSBC, Societe Generale and Unicredit were the bookrunners for the Regulation S deal.

Middle East eyed

The Middle East's banks and corporates were mostly flat at the end of the week, a trader said.

"Abu Dhabi Commercial Bank was among the top performers, tightening 9 bps to 14 bps on the week," she said. "Sharjah Islamic Bank was the underperformer - the '16s were 16 bps wider - despite Fitch upgrading the viability rating at the end of last week."

Also underperforming were bonds from DPWorld and Dubai Investments Park Development.

"Saudi Electricity Co.'s new dual-tranche issue is largely unchanged since launch," she said.

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