Asian Development Bank issues notes; Treasury rally boosts EM cash prices; Jamaica on deck

By Christine Van Dusen

Atlanta, Aug. 10 – Philippines’ Asian Development Bank sold notes on a solid Wednesday for emerging markets, following weak productivity data from the United States and the news that the Bank of Europe did not meet its bond-buying goals.

“Emerging markets open strong,” a London-based trader said.

Oil prices also impacted the big picture on Wednesday. They stabilized overnight but remained under pressure amid worries about oversupply. This came as OPEC upgraded its demand forecast for 2016 by 30,000 barrels and left its 2017 outlook unchanged. Market-watchers now worry the oil-producing group will not agree to a production freeze at its next meeting.

Looking to Latin America, credit spreads finished mixed to unchanged on Wednesday as cash prices spiked higher and fixed income rallied, a New York-based trader said.

Brazil’s five-year credit default swaps spreads closed at 263 basis points from 265 bps, while Mexico’s was unchanged at 138 bps.

“Cash prices get a big boost from the Treasury rally, which has bonds finishing close to intraday highs,” he said. “Brazil and Mexico sovereigns outperform as the long end bonds finish higher by 1 point to 1½ points.”

High-yield names from Latin American were mixed on the session, with PDVSA’s 2017s closing at 72 from 73.45, Venezuela’s 2027s down at 46.50 from 47.25 and Argentina’s Bonar 2024s up at 117.75 from 117.05. The 2026s closed at 110.75 from 109.875.

“Flows continue to see better buyers, with interest concentrated on long-dated bonds in an ongoing effort to pick up yield,” he said.

Impeachment vote lifts bonds

Taking a closer look at Brazil, the Senate met and voted in favor of an impeachment trial for President Dilma Rousseff, who is now temporarily suspended from office.

“Positive developments regarding impeachment proceedings have bonds up anywhere from 50 cents to 1 point across the curve,” a trader said.

The sovereign’s 2047s that closed at 100.10 on Tuesday were trading Wednesday at 101.10, and the 2025s that closed at 100.10 moved to 100.50, he said.

“Overall Latin America is very well-bid as global fixed income rallies and the market puts any possibility of tightening on the back burner,” he said. “Mostly buyers seen thus far, with only small scrappy sellers here and there.”

Turkey, Russia in focus

The results of Tuesday’s meeting of leaders from Turkey and Russia received attention on Wednesday, following their decision to boost trade relations and increase energy cooperation.

“The results of the meeting between the presidents of Russia and Turkey are quite positive,” according to a report from Schildershoven Finance BV. “We expect the relationships between the two countries to develop in the nearest future. Turkey will get Russian tourists back and resume its fruit export while Russia will restart the pipeline-building and strengthen its positions in the Middle East and in Europe.”

This is also good news for Turkey’s debt, the report said.

“The increased banking liquidity may add some demand to the Turkish eurobonds and help their recovery,” Schildershoven said.

Vakifbank releases earnings

Also from Turkey, lender Turkiye Vakiflar Bankasi TAO (Vakifbank) released second-quarter results that came in below consensus.

“This came on the back of a favorable first half-year, where banks have generally seen a loan-deposit spread improvement partially offset by lower income from CPI linkers,” a London-based analyst said. “The loan book saw modest growth at 4%, quarter over quarter, but deposits fell.”

Asset quality has also deteriorated slightly, he said, with the coverage ratio dropping to 82%.

“Capitalization improved slightly on the back of internal capital generation,” he said. “Vakifbank has certainly also benefitted from the higher profitability trend we have outlined previously and seen in other banks, despite lower loan growth.”

These results are unlikely to have a big impact on spreads, he said. The company’s 3¾% and 5% notes due in 2018 were trading wider versus their peers on Wednesday.

ADB does green deal

In its new deal, Philippines’ Asian Development Bank priced a two-tranche issue of $1.3 billion green bonds due in three and 10 years, according to a company announcement.

The deal included $800 million 1% notes due Aug. 16, 2019 that priced at 99.779 to yield 22.75 bps over Treasuries. The $500 million 1¾% notes due Aug. 14, 2026 priced at 99.745 to yield Treasuries plus 21.9 bps.

BofA Merrill Lynch, Credit Agricole CIB and JPMorgan were the lead managers. Daiwa Securities, Deutsche Bank, HSBC, Morgan Stanley, SEB and TD Securities were the co-lead managers.

The notes were sold to about 70 investors, the bank said. For the three-year bond, 58% were placed in the Americas; 37% in Europe, Middle East and Africa; and 5% in Asia.

About 44% of the bonds went to fund managers; 32% to central banks and official institutions; 16% to banks; and 8% to insurance, pension and other types of investors.

For the 10-year bond, 49% of the bonds went to Asia; 32% to Europe, Middle East and Africa; and 19% to the Americas. About 46% of the bonds went to insurance, pension and other types of investors; 30% to fund managers; 13% to banks; and 11% to central banks and official institutions.

Jamaica to tap amortizers

Jamaica released details on its upcoming notes issue, which will be a tap of the sovereign’s 8% dollar-denominated amortizing notes due March 15, 2039, according to a filing.

Jamaica will pay principal on the notes in three installments, with 33.33% due on March 15, 2037; 33.33% due on March 15, 2038; and 33.34% due on March 15, 2039.

The sovereign will pay interest on the outstanding principal of the notes semiannually in arrears on March 15 and September 15 of each year, starting on September 15 of this year at an annual rate of 8%.

The original issues of 8% notes due 2039 came to the market on March 8, 2007 and October 11, 2007.

Citigroup and BofA Merrill Lynch are the bookrunners for the Regulation S deal.

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