Turkey's Isbank plans notes on quiet day for EM assets; spreads widen; Vedanta in demand

By Christine Van Dusen

Atlanta, May 27 - Even as investors stayed cautious on Friday amid continued concern about the economic health of the euro zone and activity slowed ahead of the long holiday weekend, emerging markets assets remained relatively strong, market sources said.

"EM assets were stronger in a generally quiet session in Asia and Europe, ahead of a three-day weekend in both the U.S. and the U.K.," RBC Capital Markets said in a report.

Still, the U.S. Treasury moves and ever-present worry about Greece hurt risk sentiment and quieted the primary market, with just Turkey's Turkiye Is Bankasi AS (Isbank) planning new notes.

"Doubts about economic recovery continue to linger while debt negotiations progress in the background," according to a report from Barclays Capital Markets.

The JPMorgan Emerging Markets Bond Index Plus spread was 289 basis points over Treasuries, close to its widest level since September 2010.

"Spreads have struggled over the week, primarily as a function of the rampant U.S. Treasury market moving to 3.06%," a trader said. "But it's been very balanced, flow-wise, this week, and there's been some good two-way activity."

Said another trader: "The end game is far from clear, but ultimately the cash has to go somewhere."

Isbank will issue notes

In the day's lone deal-related news, Turkey-based lender Isbank announced plans for an issue of notes, a market source said.

No other details were immediately available on Friday.

"Following this news, we still haven't seen a weakness on banks yet," a trader said.

Meanwhile, the Turkey sovereign curve opened firmer.

HSBC trades up

In other trading, the recent $500 million issue of 3.575% notes due 2016 from HSBC Bank Middle East - which came to the market on May 26 at par to yield mid-swaps plus 155 bps - ticked up a little bit on Friday morning.

"It's pretty much unchanged, spread-wise, from launch," a trader said.

The notes were seen at 100.51 bid, 100.58 offered and later traded at 100.55 bid, 100.65 offered.

Support for Qatar, Lebanon

Qatar saw good support, particularly for its 2019 and 2020 bonds. And the recent notes due 2019 from Lebanon, an issue of $650 million 6% notes that priced at par, opened at 100.05 bid, 100.20 offered on Friday.

"Sharjah Islamic Bank came at Treasuries plus 292 bps and is now bid at Treasuries plus 267 bps," a trader said. "Bahrain's 2020s are still a little soggy, after yesterday's Moody's downgrade, and wider by 25 bps on the week."

African names in demand

Looking to Africa, Morocco paper was well supported, the trader said, as were notes from Senegal and the recent issue of bonds from Nigeria's GTB Finance BV.

"Africa is firm but very quiet," a market source said.

Another financial company, Kazakhstan's BTA Bank, had a quiet day for its 2018 notes.

"There's small interest as it closes out the weekend around the 91-mid level, so slightly off the lows but no real follow-through when buying was sighted today," the market source said.

That contrasts with the issuer's price action on Thursday, which a trader called "unsettling, to say the least."

Mixed day for Russian banks

Russia got some attention after the previous day's pricing of lender OJSC Russian Agricultural Bank's $800 million subordinated notes due 2021. The notes came to the market on Thursday at par to yield 6% via Barclays Capital, JPMorgan and VTB Capital in a Rule 144A and Regulation S deal.

"That has traded fairly well," a London-based trader said. "It did a lot of work around the 100.25 to 100.35 mark, having priced at par."

At the same time, the 2017 notes from Russia's Alfa Bank didn't fare well.

"That was singled out early in the day as one to sell," a trader said.

Vedanta oversubscribed

In other news, the upsized issue of $1.65 billion senior notes due 2016 and 2021 from India-focused metals and mining company Vedanta Resources plc was oversubscribed, according to a market source.

The deal included a $750 million tranche of five-year notes that priced at par to yield 6¾%, which had a final book of $1.8 billion from more than 200 investors.

About 38% of the orders came from the United States, 33% from Europe and 29% from Asia. Funds accounted for 60%, private banks 26%, banks 9% and insurance, pension and others 5%.

The deal also included a $900 million tranche of 10-year notes that priced at par to yield 8¼%, which attracted $2.4 billion in orders from more than 200 investors.

About 48% came from the United States, 36% from Europe and 16% from Asia. Funds accounted for 78%, insurance and pensions 10%, private banks 6% and banks 6%.

Barclays Capital, Citigroup, Credit Suisse, RBS and Scotia managed the deal, which was increased from $1.5 billion.

Inflows fall

Flows into emerging markets bond funds totaled $483.5 million for the week ended May 25, down from the previous week's $611.8 million, according to data tracker EPFR Global.

Still, this marked the ninth straight week of inflows for the funds.

"I think investor sentiment is warming a bit to emerging markets, and I think the inflationary concerns hammering EM bonds for a while are starting to dissipate a bit," said Brad Durham, managing director at EPFR.

Funds with local currency mandates continued to see stronger flows than those dedicated to hard currency, with local currency flows at $288.1 million for the week and hard currency at $210.9 million.

"There's a general feeling that maybe the end of monetary tightening is in sight," Durham said. "I think it's the relative stabilization of the fiscal health of EM relative to developed markets and the overall positive sentiment for bonds versus equities in the last several weeks."

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