Hainan Airlines, Odebrecht advance deals; spreads widen on economic fears; Kipco tightens

By Christine Van Dusen

Atlanta, Sept. 2 - Emerging markets assets saw spreads widen by as much as 10 basis points on Friday in response to U.S. Treasury moves and the news that the country's economy did not create jobs in August. That, along with the upcoming Labor Day holiday weekend, conspired to keep volumes low and the primary market silent on Friday.

Only China's Hainan Airlines Co. Ltd. and Brazil's Construtora Norberto Odebrecht SA took steps toward issuing new notes.

"It was an uneventful day as the combination of payrolls ... and the upcoming U.S. long weekend saw volumes well below average," a London-based trader said. "Spreads, for the record, close out wider on the day, giving back yesterday's gains as the 10-year rallies."

It remains a technical market, he said.

"And it still feels like there's an undercurrent of local demand, for the most part, on the blue chip names in EM," he said. "Hopefully, come Tuesday, we are all-hands-on-deck and we'll see a pick-up in activity."

Spreads started the day about 5 bps to 10 bps wider, a trader said, with the JPMorgan Emerging Markets Bond Index Plus spread up 8 bps at Treasuries plus 329 bps.

"External debt markets were range-bound," according to a report from RBC Capital Markets.

Venezuela was wider by 21 bps. Later in the day, the EMBI Plus spread was 1 bp tighter.

"But there's no real selling pressure," the trader said. "It's purely a reaction to the 10-year moving back to 2.13%."

In trading, demand was seen for bonds from Abu Dhabi and Turkey's Isbank while Kuwait-based Kipco's 2016 notes continued to tighten and Cairo-based African Export-Import Bank's 2016s traded up.

Hainan talks notes

China-based Hainan Airlines set price guidance for its planned issue of three-year renminbi-denominated notes at the 6% area, a market source said.

Deutsche Bank and JPMorgan are the bookrunners for the Regulation S-registered notes, which include a change-of-control put at 101%.

Brazil-based engineering and construction company Construtora Norberto Odebrecht is planning a roadshow for Sept. 5 to Sept. 7, a market source said.

Credit Suisse, Deutsche Bank and Goldman Sachs are the bookrunners for the marketing trip, which begins in London and travels to New York and Chicago before ending in Boston and Los Angeles.

"With a sprinkling of new issue announcements from Asia and Latin America I would expect there would be some sort of announcement, at least, about some pent-up [Middle Eastern] supply," a trader said. "In January the talk was over yards and yards of issuance, which for the most part never really materialized for a number of reasons.

"What is clear is that the new issue premium is back, and I'm not so sure the lesser-rated credits will even get airborne in their borrowing programs."

Abu Dhabi, Kipco stand out

In trading on Friday morning, there were some surprising pockets of local demand for some EM names, a trader said.

"I assumed most would be back next week, post-holidays," he said. "The usual suspects are in demand, mainly Abu Dhabi names."

Kuwait-based Kipco's 2016 was his bond of the week, tighter by 45 bps.

Also from the Middle East, Emirates airline's 2016 notes were trading at 98.83 bid, 99.27 offered, about 8 bps wider. And most bonds from Dubai were 8 bps to 10 bps wider at the open on Friday.

Afreximbank trades up

In other trading, Cairo-based African Export-Import Bank's 2016s were seen at par bid, 100.40 offered after recently pricing at par.

Turkey's long-end sovereigns held up well early in the session, with local interest, a trader said.

"Corporates are relatively quiet," he said, noting there was better selling of Akbank's 2018s and Yuksel Insaat's 2015s while better buying was seen for Isbank's 2016s.

"Russia has really gone quiet," he said.

Generally speaking, he said, "it's very tough forming some sort of concrete direction here. However, for a trade I'm small long, primarily as a result of client flows and the expectation of local demand once accounts and dealers are back from their holidays."

Inflows dwindle

Emerging markets bond funds saw small inflows, totaling $87 million, during the week ended Aug. 31, according to a report from data tracker EPFR Global.

Of this total, $50 million flowed into local currency bond funds, down from the $512 million of inflows reported during the previous week.

"Flows into emerging markets local currency bond funds fell to their lowest level since the third week of March," the report said.

The funds with a focus on Asia continued to outdo those focused on Latin America, Europe, the Middle East and Africa by an eight-to-one margin, EPFR said.

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