Bonds from Hungary, Croatia, some parts of Middle East improve; Orient Express deal ahead

By Christine Van Dusen

Atlanta, Aug. 12 - Spreads for emerging markets assets barely budged on Monday as euro-denominated bonds from Hungary strengthened and some demand was noted for Dubai Islamic Bank's perpetual notes.

Still, the session was a slow one for most emerging markets names.

"The market is very much in a quiet summer lull, with liquidity poor and inquiry light," a London-based trader said. "Very quiet day, but then again it is the middle of August. Plenty of sticky bonds out there, and there remain pockets of value."

The Markit iTraxx SovX CEEME ex-EU index spread on Monday opened at 233 basis points over Treasuries, 1 bp wider than Friday. The Markit iTraxx Crossover index spread - seen Friday at 401 bps - narrowed by 1 bp on Monday.

"Quiet Monday morning in Central and emerging Europe, the Middle East and Asia as investors return from holidays last week, with spreads unchanged across the board," a London-based analyst said.

Bonds from Ukraine entered the new week with "little action in the corporates, which were generally unchanged," said Svitlana Rusakova of Dragon Capital.

The State Export-Import Bank of Ukraine (Ukreximbank) 2018s were "trading down," she said.

And Mriya Agro Holding Public Ltd.'s 2018s saw some demand.

From Hungary, euro-denominated bonds have been trading a bit better, particularly on the long end of the curve, according to a report from Erste Group Research.

And sentiment has been improving for bonds from Croatia, the report said.

"We continue to see a reversal in sentiment, with dollar and local bonds becoming attractive and good offers becoming harder to find," Erste Group said. "We prefer the dollar bonds at the moment purely on yield differential."

Orient Express Bank in focus

Some market watchers were keeping an eye out for the upcoming issue of eurobonds expected from Russia-based OJSC Orient Express Bank.

The lender has average credit metrics and reported an "unstable" first half of the year, according to a report from UFS Investment Co. Orient Express also has seen a net loss in the last two quarters and has poor diversification in its loan portfolio.

"The fair premium to Russian Standard Bank's subordinated bond due 2024 is 90 bps to 110 bps," the report said. "Hence, the fair yield on the new issue, depending on the market situation, is about 12% to 12.2% with a 51/2-year duration."

Perpetuals see 'nibbling'

The perpetual notes that Abu Dhabi Islamic Bank issued at par were spotted on Monday at 101½ bid, 102 offered before moving to 101 3/8 bid, 102 offered, a trader said.

"There's some nibbling," he said. "Did see some demand, pushing up toward 102 again."

Dubai Islamic Bank's perpetuals, which also priced at par, traded Monday at 98.12 bid, 98.87 offered.

A London-based trader saw some activity for Dolphin Energy, Qtel International and Saudi Electricity Co. in moderate size.

"Emaar Properties' 2016s and 2019s are also doing much better," he said.

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