EM resilient as Fed raises interest rate; Dutch election, oil eyed; Equate, Kuwait trade

By Christine Van Dusen

Atlanta, March 15 – Emerging markets investors closely watched the Federal Reserve on Wednesday and were unsurprised by the decision to increase the benchmark interest rate as a result of moderate and steady economic growth.

“With markets already incorporating a Fed rate hike ... it will be worth it to look beyond, in terms of any changes to the forward guidance and comments from [Federal Reserve chairman Janet] Yellen’s press conference,” a London-based analyst said.

In the remarks, the Federal Reserve said it would now focus on stabilizing inflation.

Whether any of this will be a game-changer for emerging markets assets remains to be seen, he said.

The asset class “has remained resilient in the face of the heightened political uncertainty and increasing probabilities for a rate hike,” he said.

Also impacting the picture on Wednesday was the Dutch election, which pitted the establishment against anti-immigrant nationalists and was expected to be seen as an indication of how other upcoming European elections were likely to go.

“The Dutch elections are undeniably a key test of sentiment, even if alternative right-wing candidate Geert Wilders is unlikely to succeed current prime minister Mark Rutte,” the analyst said.

Oil was another factor on Wednesday. Saudi Arabia announced it has increased production to 10 million barrels a day from 9.7 million. But the total remains lower than January’s 10.5 million, the analyst said.

“All in all, the organization noted a high compliance with the OPEC and non-OPEC deal to cut production overall,” he said. “In the meantime, Saudi’s deputy crown prince Mohammed bin Salman met U.S. president Donald Trump in the White House, with the event being claimed as a ‘historic turning point’ in both countries’ relationship, not least as both are suspicious on the Iranian nuclear deal and its involvement in proxy conflicts in Syria and Yemen.”

Middle East sees support

In response, the tone for trading of Middle Eastern bonds was “broadly supportive,” a trader said, noting “some decent adding of some bank names around 2020 to 2022 maturities.”

Perpetuals from the Gulf region were mixed, he said.

“Bahrain bounced back, as one would expect after a pretty heavy close,” he said.

Equate ticks higher

The recent notes from Kuwait’s Equate Petrochemical Co. KSCC – $500 million 3.944% Islamic bonds due 2024 that came to the market at par to yield 175 bps over mid-swaps – received some attention. They traded Wednesday at 100.87 bid, 101.62 offer, another trader said.

Citigroup, HSBC, JPMorgan, KFH Capital and NBK were the global coordinators and – with Mizuho, MUFG, National Bank of Abu Dhabi and SMBC Nikko – joint bookrunners for the deal.

Kuwait active

The new issue from Kuwait remained active on Wednesday, a trader said.

The sovereign priced $3.5 billion 2¾% notes due 2022 at 99.366 to yield 2.887%. On Wednesday they were seen at 99.81 bid, 99.91 offered after Tuesday’s 99.55 bid, 99.63 offered.

The $4.5 billion 3½% notes due 2027 that priced at 99.026 to yield 3.617% traded Wednesday at 99.60 bid, 99.75 offered after Tuesday’s 99.40 bid, 99.45 offered.

JPMorgan, Citigroup, Deutsche Bank, HSBC, NBK Capital and Standard Chartered were the bookrunners for the Rule 144A and Regulation S deal.

“They go out off the highs in cash price terms but both are about 3 bps tighter, with a bias over the month to the 2026 and 2046 at the expense of the 2021 on spread,” he said.

Asian buying increases

From Asia, buying picked up in the European afternoon, with two-way flows, a trader said.

“Spreads, in general, finish unchanged to 2 basis points tighter in Chinese paper,” he said. “Elsewhere we saw buying in 2019 to 2023 papers.”

Corporates from India were among the best performers, he said, tightening about 2 bps to 4 bps overall.

“Some buyers returned in Thai oil papers in the mid curve,” he said. “Malay papers in general were steady on the day. Same for Korea, with some light two-way flows but little change in spread. Overall a noticeable pickup in general sentiment, which should continue post-FOMC providing there are no market shocks.”

Firm tone

Investment-grade financial names from Asia closed their session with a firm tone, another trader said.

“Spreads were 1 bp to 2 bps tighter,” he said. “Real-money clients remain better buyers at current yield levels while bank accounts were sidelined.”

SECO seeks to extend issue

Saudi Electricity Co. (SECO) is looking to extend its riyal-denominated issue of Islamic bonds due in 2030, a market source said.

HSBC Saudi Arabia, NCB Capital and Samba Capital are serving as financial advisers for the transaction.

The company is expected to hold discussions with sukukholders. If they don’t elect to extend the purchase date or cannot agree on extension terms, SECO will purchase the sukuk on the original date in May.

SECO, which is an electricity utility based in Riyadh, has SAR 7 billion maturing in 2030.

© 2015 Prospect News.
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