Gulf International, Octal pull deals; new Romania notes slightly wider; Latin America remains strong

By Rebecca Melvin

New York, Oct. 5 – Emerging markets debt was mostly weaker again on Friday as U.S. Treasury yields pushed up for a third straight day, and two deals were pulled from the Central & Emerging Europe Middle East and Africa region, but Latin America spreads were holding in pretty well, and Brazil outperformed, according to market sources.

Bahrain’s Gulf International Bank BSC postponed its planned U.S. dollar denominated five-year note amid climbing Treasury rates. The lender had been holding a roadshow for the deal on Monday and Tuesday, London-based market source said.

Oman-based Octal Holding SAOC, a PET sheet and resin producer, also postponed its proposed $300 million offering of senior unsecured notes (expected rating: /B+/).

There has been some investor pushback, with two deals postponed, a London-based market source said.

A second London-based trader said, “Rates moves have been the main driver in the past couple of days.”

The U.S. Labor Department's monthly jobs report on Friday showed rising wages, a sharp revision higher in August's nonfarm payrolls, and an unemployment rate that stands at its lowest level in nearly five decades.

The unemployment rate ticked down to 3.7% from 3.9% as 134,000 nonfarm jobs were added to the U.S. economy in September.

The yield on the benchmark 10-year Treasury note was higher at 3.233% on Friday, up from 3.196% on Thursday. The market was now eyeing a key technical level of 3.25% for the 10-year Treasury note.

Romania’s two new issues were trading about 3 basis points to 4 bps wider early Friday, which wasn’t surprising given the weaker broader market, a market source said.

On Thursday, Romania priced €1.15 billion of 2 7/8% 10-year notes at 98.652 to yield 3.029%, or mid-swaps plus 195 bps, and €600 million of 4 1/8% 20-year notes at 98.55 for a yield of 4.234%, or mid-swaps plus 270 bps.

But Latin America was looking pretty good, a New York-based market source said. “This is positive for EM credit. So while overall funding cost is going up, investors still see compelling value in EM and should be even more willing in the context of higher overall yields.”

Heading into its long-awaited presidential election this weekend, Brazil was the strongest performer in Latin America debt for the week. The sovereign 4 5/8% notes due 2028 closed the week more than 30 bps tighter to yield Treasuries plus 247 bps on Friday, compared to Treasuries plus 280 bps on Monday.

Brazil’s 2048 notes were closing at Treasuries plus 312 bps, compared to Treasuries plus 336 bps on Monday.

Meanwhile, the Brazilian real posted a 5% rally in the last week as well.

Investors were optimistic that far-right candidate congressman Jair Bolsonaro will be able to pull off a victory in the election and that is deemed positive for Brazil’s economy and investment environment.

The other frontrunner is far-left candidate Fernando Haddad of the Workers’ Party. He is trailing Bolsonaro in polls, which have him as the favorite of 23% compared to Bolsonaro’s 35%.

The crowded field of 13 candidates makes it unlikely that anyone will obtain the required majority for a clear first-round win on Sunday. But if, as expected, Bolsonaro is among the top two finishers, his chances of taking the presidency in the Oct. 28 run-off vote seem strong.

In primary dealings, there was no reason to suspect that the Republic of Peru wouldn’t go forward with its two-tranche offering of PEN-denominated, euroclearable bonds of benchmark size under Rule 144A and Regulation S and a U.S. dollar-denominated note registered with the Securities and Exchange Commission.

“They are meeting with investors right now and we could see a deal as early as Thursday,” a market source said.

The Peru notes are intended to be of intermediate to long duration and were being marketed by joint bookrunners JPMorgan, Morgan Stanley, Santander and Scotia. Both issues together with a possible tender were expected to be issued subject to market conditions after fixed-income investor meetings wrap up on Oct. 10.

“I think we saw an initial knee-jerk reaction to the strong economic data from this morning. As a result, we saw rates continue to head north as a continuation of the movement that had started two days ago. However, EM spreads, particularly in Latin America are not widening in lockstep with Treasuries, if anything spreads are compressing,” the market source said.

“Investors are not repricing risk assets. The move in Treasuries reflect investors’ view that the strong economic data should continue to allow the Fed on its rate-hike course,” the source said.

Also in news on Friday, African Export-Import Bank (Afreximbank) priced $500 million of 5¼% five-year notes on Thursday to yield mid-swaps plus 210 basis points, according to a syndicate source.

Pricing was tightened from guidance for a yield of mid-swaps plus 212.5 bps and from earlier talk of mid-swaps plus 225 bps.

The Treasuries sell-off was attributed to data showing strength of the U.S. economy. Also this week, trade fears were subsiding after the United States, Mexico and Canada agreed to re-establish a pact on trade, which will no longer be called the North American Free Trade Agreement.

And China's Zijin Mining Group Co Ltd. is planning to issue U.S. dollar-denominated guaranteed senior notes, subject to market conditions and investor interest, according to a company filing.

Fixed-income investor meetings are slated to begin on Monday for the Regulation S notes.

Global coordinators and bookrunners are Bank of China, Standard Chartered Bank, China CITIC Bank International, China Construction Bank, China Minsheng Banking Corp., Ltd., Hong Kong Branch, CMB International, Essence International, ICBC (Asia), Industrial Bank Co., Ltd. Hong Kong Branch and OCBC Bank.

Proceeds will be used for overseas business development and repayment of offshore debt.

Application will be made to the Hong Kong Stock Exchange for listing of the notes

Zijin Mining is engaged in mining, production, refining and sales of gold and other mineral resources in China.

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