Emerging markets assets see some demand despite investor caution; Israel plans issuance

By Christine Van Dusen

Atlanta, Dec. 15 - Though most riskier assets took a hit on Thursday, emerging markets debt managed a fairly impressive open despite continued economic concern and news that European Union leaders will hold yet another summit in the next two months to discuss the dismal state of affairs for the member sovereigns.

"Global growth concerns, linked to unresolved euro zone issues following last week's E.U. summit, continue to restrain risk appetite," according to a report from Barclays Capital Markets. "The problems are most severe in Europe but appear to be becoming an increasing issue for the global economy as a whole.

"It is difficult to see this changing quickly and we suggest investors remain cautious with relatively liquid assets, and 'safe havens' likely to continue to outperform ahead of year-end."

Amid this environment of caution, bonds from emerging Europe, Middle East and Asia saw some demand on Thursday, a trader said. Investors were also interested in Russia's Gazprom, Lukoil and TNK-BP.

"They're managing to see through the quagmire of depressing news," he said. "Barring any surprises, it looks like no more new issuance until 2012 now, so any new money only has secondary markets to go to. And with so many people appearing to be more focused on season hospitality, these markets are thin."

Ukraine in focus

Ukraine was in focus on Thursday after Moody's Investors Service knocked the sovereign's credit rating outlook down to negative due to a failure to meet bailout terms.

In response, Ukraine's 6 7/8% notes due 2015 were trading at 89 bid, 90.5 offered while its 4.95% 2015s were seen at 80.5 bid, 82.5 offered. The sovereign's 6¾% 2017s were at 84.5 bid, 86 offered while its 7.95% 2021 notes were trading at 86.5 bid, 87.5 offered.

"We've seen buying of Ukraine, which is 10 bps tighter despite Moody's putting their outlook on negative," a trader said.

BTA Bank trades up

In other trading, bonds from Kazakhstan were catching a bid, a trader said, even beleaguered BTA Bank.

"They're trading up at 24 and 25," a trader said.

From Turkey, better economic data - showing the lowest unemployment level in 10 years and a budget surplus for November - didn't manage to budge prices much.

"As we get closer to the holiday season, the quieter the open," another trader said. "They're virtually unchanged. On the corporate side, retail investors are still better buyers of Akbank's 2015s and Isbank's 2016s while Garanti Bankasi AS and Yapi Kredi are the laggards of the day."

TNK-BP better bid

Taking a closer look at Russia-based TNK-BP, the oil company's bonds were much better bid on the Street on Thursday. The company had been expected to issue bonds before the end of the year but now looks to be waiting until 2012, a market source said.

TNK's 7½% 2016s were trading at 105 bid, 106 offered while its 6 5/8% 2017s were trading at 101.75 bid, 102.75 offered. The corporate's 7 7/8% 2018s were seen at 107 bid, 108 offered while its 7¼% 2020s were trading at 102.75 bid, 103.75 offered on Thursday.

Other Russian corporates, such as Gazprom, moved tighter during the session.

In deal-related news, Israel is planning to issue between $1 billion and $1.5 billion of notes during 2012, a market source said.

No other details were immediately available on Thursday.

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