EM primary market quiet; investors eye U.S. economic news, Crimea tension; secondary rallies

By Christine Van Dusen

Atlanta, March 20 - The Federal Reserve Bank's Wednesday decision to taper its monthly bond-buying program and raise rates soon after led to a nervous open on Thursday for many emerging markets bonds. But by the afternoon, most names rebounded, particularly those from the Middle East.

"Yellen's surprisingly hawkish comments last night saw U.S. Treasuries test 2.8%," a London-based analyst said. "The market opened nervously, first-thing, but we are slowly bouncing back."

The 2030 bonds from Russia, for example, declined but then moved flat to Wednesday's close. Russian banks were more mixed, she said.

"We have seen sellers for VTB Bank," she said.

Any relief rally may be short-lived, according to a report from Erste Group Research.

In fact, it may already "be coming to an end, usurped by interest rate risk stemming from the economic recovery in the U.S.," the report said.

Indeed, the number of jobless claims filed by Americans in the last week rose less than expected.

In other news from Russia, Moscow-based rail operator Russian Railways is looking to sell RUB 25 billion in notes during the second half of this year, a market source said.

And Moscow oil and gas company OAO Lukoil will proceed with plans for a eurobond offering, despite sanctions related to the Russian government's actions in Crimea, a market source said.

On Sunday the Crimea region voted in favor of joining Russia, prompting the United States and the European Union to impose sanctions.

But the sanctions, so far, seem to be limited to between 11 and 21 officials, so corporations like Lukoil are unfazed and undeterred, the source said.

Middle East stays strong

Meanwhile, bonds from the Middle East have continued their stellar week, a trader said.

"Some of these levels are, to my mind, rich, but there is no denying the liquidity and demand out there for paper," he said. "More action in the Kuwait complex. Traded all three Kuwait Projects Co. bonds and of course Burgan Bank."

Abu Dhabi and Qatar moved a little bit lower in trading on Thursday, a trader said.

"But they're still trading well, versus rates," he said. "There are still some buyers around on the perpetuals."

GEMS hits high

The recent perpetual issue 12% notes that United Arab Emirates-based Global Education Management Systems Ltd. priced at par hit a fresh high on Thursday, a trader said.

And African names were a bit mixed in trading, with Gabon trading at new highs while sellers emerged for Ghana and Mozambique, he said.

Ukraine in focus

Meanwhile, bonds from Ukraine have been strong in trading so far this week, said Svitlana Rusakova of Dragon Capital.

But the mood was dampened somewhat by news that unarmed military observers from the Organization for Security and Co-operation in Europe (OSCE) were not permitted to enter Crimea. The observers were hoping to determine whether illicit military activity was taking place.

Among most other bonds from Central and emerging Europe, sovereigns were about 4 basis points wider, the analyst said.

Hungary 2024 bonds perform

The recent dual-tranche issue of $3 billion five- and 10-year notes from Hungary remained active, the analyst said.

The sovereign sold $2 billion 5 3/8% 10-year notes at 98.663 to yield 5.551%, or Treasuries plus 287.5 bps.

The sovereign also sold $1 billion of 4% five-year notes at 99.356 to yield 4.144%, or 260 bps over Treasuries.

"The '19s are back down to reoffer, but the '24s remain better, about 5/8-point above reoffer," the analyst said.

BNP Paribas, Citigroup Global Markets Inc., Deutsche Bank Securities Inc. and J.P. Morgan Securities plc were the bookrunners for both tranches.

The proceeds will be used for general funding purposes.

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