EM investors unfazed by Fed's talk of tapering; spreads narrow; Turkey, Ukraine in focus

By Christine Van Dusen

Atlanta, Dec. 19 - Emerging markets bond spreads tightened on Thursday as investors shrugged off the Federal Reserve's Wednesday night decision to begin tapering its bond-buying program while keeping short-term rates lower for a longer amount of time.

The Markit iTraxx SovX CEEME ex-EU index spread opened at 296 basis points over Treasuries, narrower than Wednesday's 309 bps spread.

"Central and emerging Europe, the Middle East and Asia are seeing a relatively calm morning - with buyers of Vimpelcom's 2018s, Rosneft's 2022s, Russia 2030s and Turkey 2030s - and the market is seemingly unaffected by the Fed's decision to taper last night," a London-based analyst said.

The tapering decision was already priced in, according to a report from Erste Group Research.

"The sense of relief we are witnessing now will likely evaporate very quickly as market attention moves to the timing of tightening," the bank said. "Volatility will most likely go up as markets begin to reassess global monetary policy based on changes in underlying economic data."

Investors remained concerned about the corruption scandal in Turkey, which ramped up with the release of visual evidence that reportedly shows the alleged bribery.

The probe, related to corruption in construction projects, has led to the arrest of at least 84 people, including the chief executive officer of Turkiye Halk Bankasi (Halkbank), the son of the economy minister and the son of the interior minister.

"We have seen better buyers of Halkbank, but Halkbank's 2020s are still 35 bps wider on the week," the analyst said.

Ukraine eyed

Looking to Ukraine, where political turmoil continues, sovereign bonds have so far this week performed fairly well, said Svitlana Rusakova of Dragon Capital.

Notes with shorter maturities were up the most, ticking higher by about 1 point, though the sovereign's 2014s were flat at near par.

"Some profit-taking at the long end, leading to further curve steepening," Rusakova said. "Something along the same lines in quasi-sovereigns."

Corporates have, so far this week, "showed a very good bid," she said.

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