Fed chair’s comments create volatility; Lat-Am spreads tighten; Sharjah markets sukuk

By Christine Van Dusen

Atlanta, Aug. 26 – Emerging markets assets were volatile on Friday as investors digested Federal Reserve Chair Janet Yellen’s optimistic comments from Wyoming, in which she indicated that interest rates could rise later this year.

“Jackson Hole delivers a much-anticipated jolt to a largely complacent market,” a New York-based trader said. “EM credit tightens, post-release – which initially came off as dovish – but rates started to back up meaningfully ... Offers did come down on cash prices on some of the more liquid on-the-run issues coinciding with this back-up.”

The timing of any rate hikes remained unclear.

“With previous policymakers’ comments having become more hawkish, the question is whether the Fed might be able to hike already in September and what impact this would have on the future trajectory,” a London-based analyst said. “We remain doubtful about whether today’s speech will give any more clarity on the timing.”

Emerging markets investors are now looking ahead to the summer bank holiday in the United Kingdom and, in the United States, the annual gathering of central bankers in Jackson Hole. After that, the United States has a long weekend for Labor Day, so issuance is unlikely to pick up steam until after Sept. 5.

Oil remained on radar screens, though as prices held their gains on Friday morning there was “little actual market impact on [emerging markets] credit,” the analyst said.

Looking to Latin America, the impeachment trial for Brazil President Dilma Rousseff got underway.

“It is currently also expected that a final verdict, requiring a 2/3 majority, will remove her permanently from office,” he said.

Lat-Am in focus

Credit default swaps spreads for Latin American bonds closed tighter on Friday, but “this was seen prior to the equity and rates selloff,” a New York-based trader said.

Five-year credit default swaps spreads ended the session at 259 basis points from 262 bps, while Mexico’s closed at 139 bps from 142 bps, he said.

“Cash prices were all over the place, as we opened lower, then spiked post-10 a.m. release, and finally the market was well-offered in thin trading into the close,” he said. “Lat-Am high yield finishes firmer on the day, with Venezuela and Argentina higher.”

PDVSA’s 2017s closed unchanged at 75 while Venezuela’s 2027s were at 49.75 from 49. Argentina’s Bonar 2024s were unchanged at 117.30, and the 2026s ended up at 111.40 from 110.80.

“Flows on the lighter side despite the volatility, as the big move happened later in the session once Lat-Am credit markets were already quiet,” he said. “Today certainly awoke a complacent market, as September is back on the table but with global yields subdued.”

Trading lightens

Trading on Friday was light for Middle Eastern notes, as is typical during the summer lull, with some paper around from locals and semi-professionals, a London-based trader said.

Perpetuals seem to have “run out of steam, somewhat,” he said.

Investors are looking ahead to the possible issue of notes from Saudi Arabia, he said.

“A very well-telegraphed deal that I still expect to be surely between $10 billion and $12 billion,” he said. “I’m sure there will some adjusting on peer credits – Saudi Electricity Co. [SECO] and Qatar – as we get closer to pricing.”

SECO, Qatar popular

SECO, for one, has had a “great run” lately, the trader said, with the curve tightening as much as 40 bps over the month. And notes from Qatar continued to trade well, with the sovereign curve narrower by 15 bps on the month.

“Bank paper in Qatar is very popular still,” he said.

Lebanon’s bonds, which have been popular, were little-offered on Friday.

And euro-denominated paper from the region was “ridiculously well-bid, thanks to the European Central Bank’s efforts,” he said.

SIB on roadshow

Sharjah Islamic Bank is on a roadshow to market a dollar-denominated and benchmark-sized issue of Islamic bonds, a market source said.

Bank ABC, Dubai Islamic Bank, Emirates NBD Capital, HSBC, KFH Capital, Maybank, Noor Bank, QNB Capital and Standard Chartered are the bookrunners for the deal.

Poland prices panda bonds

Late on Thursday, Poland priced a RMB 3 billion issue of 3.4% panda bonds due Aug. 26, 2018 at par to yield 3.4%, according to an announcement from the sovereign.

The notes were talked in the 3% area.

Bank of China and HSBC were the joint lead underwriters.

© 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.