EM primary quiet despite better U.S. data; Argentina stands out; Lithuania eyes note sale

By Christine Van Dusen

Atlanta, Aug. 31 - Emerging market issuers and investors stayed on the sidelines on Tuesday, succumbing to the summertime slowdown even as the Conference Board reported that consumer confidence in the United States rose more than expected in August.

"It's extremely dead," a Connecticut-based market source said. "Most people are out on vacation right now or closing up shop early most days this week."

A Zurich-based trader agreed. "There's not much going on," he said. "The market is waiting for clearer direction."

The summer doldrums, in full effect, were being "compounded by the current level of global economic uncertainty and the pessimism that has been pervading markets for the past month or so," said Nick Chamie, global head of emerging market research for RBC Capital Markets.

Other factors may also be at play, the Connecticut-based source said.

"It's hard to tell if people are just being too lazy, but most bonds don't even have active markets and screens right now," he said. "Most work is getting done this morning so people can close down early. We got most of our stuff done last week knowing what would happen. There are no orders in the market."

Markets slightly firmer

The market seemed to still be digesting the recent rash of negative-to-mixed economic news from the United States.

"Clearly the pervading mood has continued to focus on some of the negative data releases coming out of the United States," Chamie said. "Today consumer confidence was a surprise slightly to the upside, so that's given a small lift there."

The Conference Board's index climbed to 53.5 from 51 in the previous month, which, when added to Federal Reserve chairman Ben Bernanke's recent remarks about the economy, could be a signal that the recovery could gain steam.

So the markets were "actually slightly firmer on the day," Chamie said. "But generally there seems to be a lack of conviction, and people seem to prefer to stay on the sidelines given the degree of uncertainty."

Activity won't likely pick up until at least the second week of September, he said. "We'll have to see whether investors act more decisively on their current set of fears or not. For the time being it seems as though investors are content to sit on the sidelines."

Argentina outperforms

Argentina was a standout on Tuesday after a Monday that saw the sovereign underperform due to its ongoing spat with media giant Clarin Group about alleged coup-mongering.

"I don't think people are attaching that much significance to it," Chamie said. "They know it's just Argentinean politics and doesn't seem to be going beyond that."

Much more significant for the sovereign, he said, is the fact that "economic growth is quite strong, at around 8% or 9% in recent months. As long as U.S. high yield continues to see good demand, then Argentina is going to see good interest from those investors looking for places where they can buy higher yields."

The JPMorgan Emerging Market Bond Index Plus spread for Argentina at mid-afternoon on Tuesday was 744 basis points, tighter by 12 bps. And GDP warrants were up about 30 cents on the day, "trading above $10, which is quite a good move," Chamie said.

Deals on pause

New issuance, at the moment, appears to be "more or less closed," he said. "People are focusing on waiting for investors to return en masse to their desks before marketing deals."

While most market-watchers expect the primary market won't pick up until after the Labor Day holiday, some issuers could sneak in some smaller deals in the meantime, he said.

That's what happened with Poland-based mobile phone operator Polkomtel SA - which on Monday priced PLN 1 billion notes due 2015 to yield Wibor plus 170 bps - and the CHF 200 million 1¾% notes due 2014 from Korea Development Bank that priced last week at 100.232 to yield 1.69%.

There's "always a possibility" that some deals could get done, Chamie said.

"Corporates have been massively underperforming sovereigns over the last couple of weeks, particularly heading into late last week," he said. "They've caught a bit of a bid, thanks to the small bounce. The bleeding in the corporate space seems to be abating."

New deals could "trickle in," the Connecticut-based source said. "Eventually it will slowly start picking up."

The next issuer who could bring a deal to market is Lithuania, the Zurich-based trader said. The sovereign recently selected Barclays Capital, HSBC and RBS as bookrunners for a possible issue of notes.

"That should come to the market shortly," he said.

© 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.