Emerging market debt flat to weaker; three banks tap the market; funds see $32 million of inflows

By Reshmi Basu and Paul A. Harris

New York, May 4 - Emerging market debt traded with a cautious tone Thursday, a day before the release of Friday's non-farm payroll numbers in the United States.

On the primary front, banks from Kazakhstan and Russia saw their deals upsized due to strong investor demand.

Out of Kazakhstan, JSC Halyk Bank priced an upsized $300 million issue of 7¾% seven-year senior fixed-rate notes (Baa2/BB/BB+) at a 200 basis points spread to mid-swaps on Thursday.

That spread came inside of the mid-swaps plus 220 to 225 basis points price talk, which had been revised from mid-swaps plus 235 basis points.

The issue was sold at a 99.76 to yield 7.795%.

Demand was good, according to an informed source, who added that the order book was in excess of $1.5 billion.

HSBC and JP Morgan were bookrunners for the Rule 144A/Regulation S issue.

And JSC ATF Bank sold an upsized offering of $350 million in 10-year senior fixed-rate notes (Ba1/B+/BB-) at 98.391 to yield 9¼%.

The issue, increased from $250 million, priced in line with revised price talk, which was widened to the 9¼% area from the 9 1/8% area.

Deutsche Bank and ING were the underwriters for the Rule 144A/Regulation S offering.

And Russia's BIN Bank priced an upsized offering of $200 million in three-year loan participation notes (/B-/B-) at par to yield 9½%, via Commerzbank and Merrill Lynch.

In other supply news, Russia's JSC Sibacadembank set price talk for a dollar-denominated offering of three-year fixed-rate notes (B1//B) at 9% to 9¼%.

ABN Amro and Citigroup are joint bookrunners for the Rule 144A/Regulation S offering, which is being marketed via the company's loan participation notes program.

The issue would be a nice addition for emerging market bond investors in a diversified portfolio, according to an investor note obtained by Prospect News.

EM sees muted trading

Emerging market debt traded flat to weaker Thursday. In what has become a monthly ritual, trading volumes continued to thin out the day before the release of U.S. jobs data, noted sources.

"Volumes still seem on the lighter side," said a trader, who described the market tone as cautious.

Indeed, flows into the asset class for this week illustrate just how meager volumes have been. Dedicated emerging market funds saw a mere $32.23 million enter the market for the week ending May 3, according to EmergingPortfolio.com Fund Research.

Investors are unwilling to add risk on worries that Friday's data could usher in another volatile session for U.S government bonds.

What Friday's session will bring is anyone's guess, observed sources.

At Thursday's close, the yield on the 10-year Treasury note stood at 5.15%. And investors are worried that the yield could mark a new territory after Friday's data. If the job numbers send Treasuries into a new phase, the environment could be difficult for emerging markets, noted the trader.

"Again it's something that people are looking at for reasons to maybe slow down on volume. It seems like that is one of the risk events that everyone looks at, so we're see what happens once we get through it," he remarked.

The market consensus is for 190,000 to 210,000 new jobs to have been created in April.

One syndicate source summed up the market's recent performance as a "strange market."

"Things are very tight," noted the source.

"It feels like people have cash, but they don't want to buy just anything. They're looking for good quality, not run-of-the-mill bonds."

The source added that most of the investments have come from institutional money.

Peru up, Colombia down

During the session, Peru was the standout performer while Colombia was the underperformer, according to a trader. However, there was no impetus behind each of their performances, he noted.

At day's end, the Peruvian bond due 2012 was up 0.85 to 111.25 bid, 112 offered while the bond due 2033 was better by 0.60 to 113 bid, 113.25 offered. The Colombian bond due 2012 had lost 0.50 to 116.75 bid, 117.50 offered.

Meanwhile the Brazilian bond due 2040 lost 0.25 on the day to finish at 128.06 bid, 129.10 offered. The Russian bond due 2030 shed 0.25 to 107.75 bid, 108 offered.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.