Inflows continue; new Afren bond trades up 3 points; Berau to bring junk in week ahead

By Aleesia Forni

Columbus, Ohio, March 2 - Buyer's continued to rule during a quiet Friday session for emerging market bonds, according to a trader.

Right now it's one-way traffic, the source added, noting that spreads and yields on the long end of the maturity curve are still probably appealing, while the short end looks less attractive.

However, even the short end of the curve must be judged against the microscopic returns on Treasuries, with three-year government paper yielding just 0.39%, the source added.

Meanwhile, technical pressures continue to mount on the institutional emerging markets investors who are looking for places to put cash to work.

With the demand for bonds already intense, hard currency emerging markets bond funds saw $887 million of inflows for the week to Wednesday, according to EPFR Global.

That inflow follows the previous week's $481 million inflow, bringing the year-to-date flows to $4.97 billion, according to a Prospect News analysis of the data.

Soaring Afren levels off

In the secondary market, Afren plc's soaring 10¼% notes due in 2019, which priced at 99.976 in a $300 million transaction on Thursday, were seen 3 points higher on Friday, according to a trader.

However the paper appears to have found its level, the trader added.

The deal met with intense demand among emerging markets investors, who were attentive to the company's share price, which rallied phenomenally since the beginning of the year.

The deal was advertised as $300 million to $350 million in size and played to a book bearing $2 billion of orders, according to a fund manager.

Week ahead

Indonesia's Berau Coal Energy Tbk. PT is headed to the market in the week ahead.

Those who braved Afren's Nigerian energy play will be even more fearless when Berau Coal Energy prices its dollar-denominated five-year deal (B1), a fund manager said.

For one thing, the Indonesian sovereign has lately been lifted to high grade, when Fitch Ratings lifted it to BBB- recently.

The sovereign upgrade will clear the way for an even bigger crowd than would ordinarily show up for an Asian high-yield corporate. Meetings are underway on the deal, which is coming via Bank of America Merrill Lynch and Credit Suisse.

A buysider expects the new Berau deal to come together in the context of 8%.

Elsewhere Qatar's Doha Bank is expected to bring bonds following investor meetings, according to a trader.

The trader expects the deal to yield higher than Qatar National Bank SAQ's $1 billion 3 3/8% five-year notes, which came at an issue price of 99.631 to yield 3.456% on Feb. 14.

"Real money investors are adding to their portfolios," a market source said on Friday, adding that emerging markets funds will likely see more inflows in the week to come, as the asset class garners ever greater attention.

"Supply has been eaten up, and subsequent bond taps have been eaten up," the trader said.

In the near term, issuance should intensify, the source added, noting that the present rally has opened wide the window for issuers to opportunistically raise capital.

That window won't stay open forever, the source counseled.

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