EM sentiment up, but investors lack confidence; Middle Eastern bonds strong; Turkey eyed

By Christine Van Dusen

Atlanta, Feb. 14 - Emerging markets assets on Friday were somewhat "directionless" after a busy and turbulent week that saw investors embrace risk, avoid it, then embrace it again.

"It was a week of contrasts in EM," a London-based analyst said. "Sectors grinded tighter, helped by relatively low issuance volumes."

On Friday, investors' mood turned more positive after Thursday's negativity, she said.

"Overall, EM seems range-bound, with investors willing to take advantage of excessive widening in specific names but still lacking the confidence to take an outright view," she said.

This suggests that EM will remain "relatively directionless," she said.

Bonds from the Middle East were among the few to stay strong during the market's mood swings, a London-based trader said.

"Local accounts remain flush with liquidity, and any move lower in United States Treasuries will only see spread tightening," he said. "Front ends are very well-bid indeed, especially from parts of Abu Dhabi and Qatar."

However, National Bank of Abu Dhabi's 2019s underperformed after a strong run, the analyst said.

"We generally saw demand for International Petroleum Investment Co., Abu Dhabi National Energy Co., Saudi Electricity Co. and DP World," she said.

And Sabic Capital's 2018s were popular, tightening 26 basis points.

Amid the week's market volatility, Russia-based OAO Sberbank postponed its planned issue of dollar-denominated notes, a market source said.

And in other news on Friday, emerging markets bond funds saw outflows of $1.4 billion for the week, she said.

"The vast majority was for local currency bonds," she said.

Turkey active

Turkey remained in focus on Friday, after the sovereign's $1.5 billion 6 5/8% notes due 2045 came to the market at 99.026 to yield 6.7%, or Treasuries plus 297.2 bps.

"Turkey had a strong week overall, and front-end Turkish paper now appears to offer little value," a trader said.

Demand was noted for Asya Katilim Bankasi AS (Bank Asya) and the 2017 notes from Yapi ve Kredi Bankasi AS (Yapi Kredi), which tightened about 28 bps.

"The Garanti and Akbank curves are now inverted and we would expect steepening," she said.

Other Turkish corporates were about 30 bps tighter on Friday, with strong performance from Anadolu Efes Biracilik Ve Malt San's 2022. Those notes have tightened 41 bps.

"Koc Holding's 2020s lagged somewhat," she said.

Dubai Investments trades up

The new $300 million five-year Islamic notes from Dubai Investments Park Development Co. - a subsidiary of Dubai Investments PJSC - that priced at par traded Friday at 100.45 bid, 100.65 offered, a trader said.

The notes came to the market this week at a yield of 4.291%, or mid-swaps plus 265 bps.

Al Hilal Bank, Citigroup, Dubai Islamic Bank and Emirates NBD were the bookrunners for the Regulation S sukuk.

Russian banks narrow

Russian banks saw their bonds tighten about 13 bps by Friday, led by Gazprombank, the analyst said.

"The perpetuals were 36 bps tighter," she said. "VTB perpetuals have also enjoyed good performance."

Among other Russian corporates, mining company Metalloinvest JSC's 2016s put in a good week.

"Euro paper generally lagged," she said. "Russian corporate paper is starting to look somewhat expensive."

Sberbank postpones

The reason Russia-based Sberbank postponed its planned issue of dollar-denominated notes was because of market volatility, a market source said.

The Moscow-based lender had mandated BofA Merrill Lynch, Credit Suisse, Deutsche Bank and Sberbank CIB for the transaction.

Market sources had expected the deal to yield between 5.85% and 5.95%.

Existing bonds from Sberbank performed well during the week, a trader said.

Poland does deal

On Thursday, Poland priced a €300 million issue of 3.272% notes due Feb. 27, 2034 at par to yield 3.272%, or mid-swaps plus 78.5 bps, according to an announcement from the Ministry of Finance.

HSBC Trinkaus was the bookrunner for the deal.

About 88% of the bonds were allocated to insurance companies and 12% to pension funds.

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