Morning Commentary: EM tone better, but investors lack conviction; Turkey wider, Philippines mixed

By Christine Van Dusen

Atlanta, Aug. 28 – Emerging markets bonds were strong, then weakened, then strengthened again on Friday morning amid somewhat subdued trading and some profit-taking after Thursday’s major rally.

“Strong tone to begin, but yet again, a bit of an aberration in confidence as we went into lunch,” a London-based trader said. “Europe opened with a little less gusto than yesterday, however, and we saw further profit-taking early afternoon. To close out, the market has bounced back with uniform strength in both equities and rates markets, boosting broad-based appetite for credit.”

Investors seem to be happy to hold risk, another trader said, but lack the conviction to “follow through, and are waiting for more central bank action to support risk assets.”

Turkey’s bonds were slightly wider with thin volumes on Friday morning, he said.

“The same could be said for most [emerging markets] curves,” he said. “There continues to be some activity in Turkey banks and corporate paper, as they had cheapened up recently.”

Looking to Asia, bonds from China remained about 3 basis points to 5 bps tighter with some buy interest emerging, another trader said.

“Korean utilities, having seen profit-taking early on, staged a further rally late this afternoon,” he said, noting the space was “another 5 bps tighter in the 10-year.”

The Philippines curve was mixed, he said.

From Ukraine, bonds saw some buying into the end of the week after the sovereign’s debt deal went through, said Fyodor Bagnenko, a fixed income trader with Dragon Capital.

“Bigger gains in quasi-sovereigns, as the sovereign yield crystalizes as a pricing benchmark, while corporates added 1 point to 3 points,” he said.

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