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Published on 6/6/2016 in the Prospect News Emerging Markets Daily.

Qatar bank taps market; spreads tighten after Yellen remarks; Lat-Am prices tick higher

By Christine Van Dusen

Atlanta, June 6 – Commercial Bank of Qatar QSC sold notes on solid sentiment on Monday as even the start of Ramadan, as well as a significant amount of existing supply from the Middle East, couldn't stop the issuer from bringing the new deal to the market.

This occurred against the backdrop of last week’s weaker economic data from the United States and comments from Federal Reserve chairman Janet Yellen that confirmed the bank won't raise rates until the economic picture improves.

“Following the disappointing nonfarm payroll figures from Friday, all eyes [were on] Yellen today,” a London-based analyst said on Monday morning. “Should markets be right, with futures pricing in a hike probability of only 4% in June and 27% in July, this would provide some favorable grounds for EM.”

But there's a risk “that investors are pricing in a too low probability and we could end up with a correction in U.S. rates,” he said.

Looking to Latin America, spreads continued to tighten and cash prices moved higher, a New York-based trader said.

Brazil's five-year credit default swaps spreads closed Monday at 328 basis points from 336 bps while Mexico’s moved to 158 bps from 165 bps.

“The rally in EM credit carries over from last week,” he said. “Cash prices were well-bid throughout the session, with some Street-side selling in small size happening into the close.”

High-yield names from the region fared well, with Venezuela's 2027s trading at 45 from 44.50 and PDVSA's 2017s up at 70 from 69, he said.

Argentina moves higher

Argentina's Bonar 2024s were seen in the 113 area after trading at 112.75 while the sovereign's 2026s moved to 106.375 from 105.25.

“Flows are light, as has been the case for EM on Mondays, with better buyers,” the New York trader said. “Yellen testimony today was really a non-event, as the Fed chair walks a fine line in an effort to not disrupt financial markets. Positive momentum in EM fixed income continues as yield pick-up in a yield-starved world remains the trade for now.”

South Africa eyed

Meanwhile, South Africa received some attention on Monday after S&P affirmed the sovereign’s rating at BBB-, “which provides the country with some breathing space,” a trader said.

“Market consensus had mostly anticipated no downgrade toward sub-investment grade, although we think that it was a close call,” he said.

This helped boost the tone for risk among emerging markets assets, he said.

Abu Dhabi notes trade

Investors were also looking at Abu Dhabi's recent $5 billion issue of notes due in five and 10 years.

The $2.5 billion 2 1/8% notes due in five years that priced at 99.562 to yield Treasuries plus 85 basis points, following talk in the 110 bps area, traded Monday at Treasuries plus 108 bps.

The $2.5 billion 3 1/8% notes due in 10 years that priced at 99.753 to yield Treasuries plus 125 bps, following talk in the 150 bps area, traded Monday at Treasuries plus 138.4 bps.

BofA Merrill Lynch, Citigroup and JPMorgan were the bookrunners for the Rule 144A and Regulation S deal.

“If you had told me Abu Dhabi would return after a seven-year hiatus and price a five-year bond that would move 23 bps wider versus Treasuries, I'd have said you were mad,” he said.

CBQ prices notes

Commercial Bank of Qatar priced $750 million 3¼% five-year notes at 99.384 to yield 3.385%, or mid-swaps plus 215 bps, an informed source said.

The notes priced tighter than talk, initially set in the mid-swaps plus 237.5 bps area.

Citigroup, HSBC, Morgan Stanley and National Bank of Abu Dhabi were the bookrunners for the Regulation S deal.

The bank provides retail and wholesale banking services and is based in Doha.

“Looks appealing, at this point,” a trader said.

Motherson sells bonds

Late last week, India's Samvardhana Motherson Automotive Systems Group BV sold €500 million notes due in 2023 at 4 1/8%, a market source said.

ANZ, DBS Bank and HSBC were the joint global coordinators, joint bookrunners and joint lead managers for the Regulation S deal. Barclays and Standard Chartered were joint bookrunners and joint lead managers.

Other details were not immediately available on Monday.

The subsidiary of Motherson Sumi Systems Ltd. is a Noida, India-based supplier of automobile components.


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