Activity increases for EM bonds; buyers emerge; IPIC stands out; TAQA eyed

By Christine Van Dusen

Atlanta, Jan. 3 - Emerging markets bonds put in a slightly busier session on Friday against a backdrop of mixed economic data from around the globe.

Price manufacturing index data has made little progress, even as confidence levels have remained "robust" in the euro zone and the United States, according to a report from Barclays.

"Macroeconomic news in the past fortnight has not helped emerging markets," the report said. "With U.S. yields at post-taper highs, investor sentiment is likely to remain cool toward EM in the early stages of 2014."

Meanwhile, bonds from the Middle East and North Africa were more active than expected on Friday, a London-based trader said.

"Yesterday was lackluster," he said. "This morning, with the 10-year U.S. Treasury at 2.975%, some buyers are circling."

Faring particularly well were International Petroleum Investment Co.'s dollar-denominated notes due in 2015 and euro-denominated notes due in 2016 and 2018.

"Also, the National Bank of Abu Dhabi curve is performing very well, the best part of 20 basis points to 25 bps tighter on the month," he said.

Buyers remained for Abu Dhabi National Energy Co. (TAQA).

"The 2023 dollar notes are now 20 bps tighter on the month," he said.

Bahrain bonds, which saw better buyers on Thursday, didn't see any offers emerge on Friday, he said.

"I still think Qtel's 2018s and 2028s are the best value on their curve," he said. "Qatar National Bank remains solid, with both 2018s 20 bps to 30 bps tighter on the month."

The primary market remained quiet on Friday.

"Next week will be the first five-day week for a while," the London trader said. "Hopefully a few issuers will look to come."

Perpetuals in focus

Looking to perpetual bonds from the Middle East, the notes from Abu Dhabi Islamic Bank opened on Friday at par bid, 101 offered after pricing at par, a trader said.

On Thursday the notes closed at 99¾ bid, 100¾ offered.

Emirates Islamic Bank's perpetuals, which also priced at par, moved to 90.87 bid, 91.62 offered on Friday after trading on Thursday with a low- to mid-91 handle.

And the recent issue of 12% perpetual notes from the United Arab Emirates' Global Education Management Systems Ltd. was unchanged at 106¾ bid, 107¾ offered on Friday.

The bonds have tightened as much as 100 bps over the month, he said.

Egypt outlook revised

Also on Friday, Abu Dhabi Commercial Bank's 2023s were sighted at 92.87 bid, 93.62 offered, a trader said.

On Thursday the notes traded at 93.10.

And Egypt - which had its outlook revised upward to stable by Fitch Ratings - saw its 2020 notes trade at 95.12 bid, 96.62 offered on Friday.

The sovereign also had its rating affirmed at B-.

Egypt's 2040 notes were seen at 83.12 bid, 85.12 offered.

Funds see record outflows

In other news, emerging markets bond funds saw record outflows for the year 2013, according to a new report from data-tracker EPFR Global.

"Investors bailed out of the hard currency funds they had surged into the previous year," the report said.

Bond funds that focused on Brazil hit a new outflow record, while funds that focused on China managed to buck the trend, EPFR said.

"Bar the possibility of another fight over the U.S. debt ceiling and the impact of the hike in Japan's sales tax in second-quarter 2014, there isn't too much on the immediate horizon that is likely to shake fund flows out of their current pattern," said Cameron Brandt, EPFR's global research director.

"Investors have had plenty of time to prepare for the tapering of [quantitative easing], there's a two-year budget deal in place in the U.S., monetary policy in Japan and the euro zone is expected to remain largely unchanged, tensions in the Middle East have eased and China is expected to maintain a growth rate around 7½%."

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