Big outflows for volatile week; spreads widen, trading thins; Serbia, Russia deals ahead

By Christine Van Dusen

Atlanta, June 7 - Trading of emerging markets assets remained volatile and thin on Friday, ending a week that saw $1.52 billion in outflows from emerging markets bond funds - the biggest weekly outflow reported since the third quarter of 2011.

"The week saw the first outflows from funds with local-currency mandates since early third-quarter 2012 and the biggest outflows from hard-currency EM funds since second-quarter 2007," said Cameron Brandt, senior analyst with EPFR.

"China bond funds did keep their inflow streak alive, as did emerging markets corporate bond funds, which last posted outflows seven months ago," he said.

In the previous week, the emerging markets bond funds reported their first outflow in 51 weeks, with $242 million moving away from emerging markets.

Market-watchers blame the instability in Turkey and concerns about whether the United States Federal Reserve will cut back on its quantitative easing program later in 2013.

Friday's mixed economic data did little to clarify the situation, with nonfarm payrolls rising by 175,000 in May and the unemployment rate moving from 7.5% to 7.6%.

Investors seemed to have positioned themselves for weaker numbers, according to a report from Barclays. Volumes were light on Friday morning.

What little trading activity that did take place focused mostly on selling, a London-based analyst said.

The Markit iTraxx SovX CEEME ex-EU index spread on Friday widened 9 basis points to 227 bps over Treasuries, while the Markit iTraxx Crossover index spread - sighted at 447 bps over Treasuries on Thursday - was spotted Friday at 461 bps.

Turkey in focus

Taking a closer look at Turkey, sovereign cash bonds were 10 bps to 20 bps wider on Friday as a result of the prime minister's Thursday speech, which criticized and demanded an end to protests. An earlier speech in Tunisia took a similar stance and said the development of Gezi Park would move forward.

"Investors had hoped for more conciliatory language," the London analyst said. "This morning Turkish credit default swaps are 7 bps wider, with cash 10 bps wider."

Lat-Am bonds 'swoon'

Trading of Latin American assets remained dicey on Friday, a New York-based trader said, following a Thursday that saw investors in "full panic mode."

"By mid-morning we were in full panic mode once again as the market quickly made new low in many credits," he said. "We watched prices and spreads swoon lower and wider again."

Quiet week for Ukraine

Bonds from Ukraine headed into the end of the week quietly, with wider spreads but little activity, said Svitlana Rusakova of Dragon Capital.

The European Central Bank's press conference earlier this week sent some long-end sovereign issues down as much as 1½ points, she said.

But the sovereign's 2023s did eventually get a slightly lift to 94¼ before settling in at 94 bid, 95 offered.

"There was little actual trading in the corporates, despite sellers remaining around," she said.

Serbia, Russia pick banks

In deal-related news, Serbia has mandated Citigroup and Deutsche Bank for a dollar-denominated issue of notes, a market source said.

The sovereign previously picked Barclays, Deutsche Bank and JPMorgan to arrange a non-deal roadshow.

And Russia has mandated Barclays, Deutsche Bank, Gazprombank, Renaissance Capital, RBS and VTB Capital for as much as $7 billion of notes this year, a market source said.

No other details were immediately available on Friday.

BMCE may have bookrunners

Market sources also were whispering about the upcoming $500 million issue of five-year notes from Morocco's Banque Marocaine du Commerce Exterieur (BMCE Bank).

The Casablanca-based bank has been talking to possible bookrunners and may have zeroed in on Barclays, Citigroup and BNP Paribas, a trader said.

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