Morning Commentary: Mixed morning for EM; new Kogas softens; low flows for Asia; Ukraine perks up

By Christine Van Dusen

Atlanta, July 17 – The new notes from Kazakhstan widened, Ukraine's bonds improved and Asian assets were mostly quiet on Friday morning, ending another volatile week for emerging markets assets.

Most Asian names were broadly unchanged, except for China, which saw its notes get a boost on renewed buying of Chinese equities.

“Chinese property, in particular, saw real-money buying,” a London-based trader said. “The high-yield space is up 3/8-point to 1 3/8-point.”

Korea Gas Corp.'s new 3˝% notes due 2025 that priced 99.824 to yield Treasuries plus 110 basis points was a bit soft on Friday.

“Unable to break away from reoffer,” he said.

Barclays, BofA Merrill Lynch, Deutsche Bank, HSBC, Mizuho Securities and UBS were the bookrunners for the Rule 144A and Regulation S deal.

In Asian sovereigns, “the flows were also negligible, but a positive overnight tone and a decent bounce in China has got the Indonesia long end around 1/2-point higher while the belly is around 1/8-point higher,” the London trader said. “U.S. curve-steepening is certainly helping valuations in the long end.”

Philippines bonds were mostly unchanged in the belly of the curve while the long end was up about 1/4-point, “with the exception of 2037s,” he said. “They're in a squeeze, up a 1/2-point on the day.”

Kazakhstan bonds widen

In other trading on Friday morning, the new 2045 notes that Kazakhstan priced at Treasuries plus 335 bps were about 40 bps wide to the 2044s, another trader said.

“On the face of it, the new Kazakhstan 2045 has a lot going for it,” he said. “But the 17 cash points puts me off.”

Citigroup, JPMorgan, Kazkommerts Securities and Halyk Finance were the bookrunners.

The deal included $2.5 billion notes due in 2025 that came to the market at Treasuries plus 285 bps and $1.5 billion notes due in 2045 that came to the market at Treasuries plus 335 bps.

“Any negative headlines over the weekend – take your pick from Greece, China, terrorism – and we could see risk off on Monday and last-in, first-out rules will apply,” he said. “The liquid $4 billion new Kazakh supply will suffer most. If the weekend goes without a hitch and Monday is a risk-on session, the 44's will retrace the 30 bps of widening we saw into this week’s deal – win-win.”

Ukraine notes improve

Bonds from Ukraine entered the end of the week on better footing, a trader said.

“The sovereign opened stronger in the morning after a statement was released that Ukraine and bondholders made significant progress on ‘a number of substantive issues’ and agreed to focus on 'narrowing the gaps,’” said Fyodor Bagnenko, a fixed income trader with Dragon Capital.

The sovereign's 2017s traded between 54.75 and 55.75, up 1 ½ points, he said, amid low liquidity.

“Some offers in the recently squeezed Ukraine 2021s and 2022s appeared,” he said.

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