New Nigeria notes trade up; emerging markets firm overall; Kenya on tap, but LatAm quiet

By Rebecca Melvin

New York, Feb. 16 – Nigeria’s newly priced notes traded up upon release for secondary market dealings on Friday after the sovereign priced two tranches of $1.25 billion apiece at yield spreads that were tight compared to guidance and initial price thoughts, market sources said.

Nigeria’s 7.143% notes due 2030 were quoted at 101.55 bid, 101.85 offered at late morning, and the sister tranche, a 7.696% note due 2038 was at 102¾ bid, 103¼ offered, according to a London-based trader.

The order book for the two tranches topped $11 billion for the notes, one source said. And with the cheap pricing, demand was high.

Spreads tightened on Nigeria’s existing 2027 and 2047 notes that priced in November. The Nigeria 6½% notes due 2027 were seen 99½ bid, 100½ offered, with spread tighter by 18.4 basis points. The Nigeria 7 5/8% notes due 2047 were 100¾ bid, 101½ offered with its spread tighter by 12 bps. But for the month, spreads on those two bonds were wider, according to a London-based trader.

Elsewhere, Egypt’s new tranches did well this past week and were strong on Friday, the trader said. Other parts of the Middle East were also faring well, and South Africa’s bond curve remained 10 bps to 12 bps after having tightened following news midweek that Jacob Zuma stepped down as president after the African National Congress voted to remove him. Markets seem to like his successor Cyril Ramaphosa.

There was no pipeline heard in the Central & Eastern Europe, Middle East and Africa region, but it was expected that more stability would bring out supply.

In addition, there was nothing seen so far in Latin America, several sources concurred.

“There is no visible pipeline in LatAm for next week. I think things are going to stay quiet for a while as the dust continues to settle and vol subsides. In U.S. investment grade debt, things are expected to remain quiet through the beginning of March. But all of this could change suddenly, of course,” a New York-based market source said.

EM bond funds see outflows

This week sources suggested there had been a sea-change in the market with volatility and rising rates causing a shift in momentum to the buyside. Meanwhile, the last week showed an outflow from hard currency emerging market bond funds of $2.66 billion for the week ending Feb. 14. The outflow for local currency emerging market bond funds was $243 million, resulting in a total outflow of $2.86 billion, and the largest outflow since mid-November 2016, according to the EPFR data that was published late Thursday.

Even as interest rate volatility took a toll on emerging markets this past week, a few deals managed to squeak through including a triple tranche benchmark for Egypt for $4 billion and a dual tranche deal for Nigeria for $2.5 billion.

One of the week’s casualties, however, was GTLK Europe Capital DAC, a special purpose vehicle of Russian state-owned PJSC State Transport Leasing Co., which showed up with a dollar-denominated benchmark deal set to yield 5½% on Tuesday, only to have the deal pulled on Wednesday.

Looking ahead, Kenya is on the road with a benchmark offering of 10- and 30-year bonds that will price early next week subject to market conditions.

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