Emerging markets primary calm amid global economic worries; Bahrain paper in demand

By Christine Van Dusen

Atlanta, Aug. 16 - Emerging markets investors and issuers sat on the sidelines Tuesday as continued concern about the global economic crisis - as well as the effects of Ramadan and the slowly encroaching summer doldrums - led to thin volumes, wider spreads and little action in the primary market.

But the market did take a small breather from the recent spate of volatility, and some prices managed to bounce in the secondary market.

"It's a very interesting market here, and I don't think the volatility has disappeared, even after a steady two days this week," a trader said. "It's a fairly active day with some balanced interests. In trying to stay close to home, there are pockets of value out there."

Said another trader: "All the external indicators today suggest weaker prices, but we have enough momentum from the bounce of the last two days to ensure prices remain stable. Perhaps now we will get the long-awaited August lull."

The Markit iTraxx SovX WE index started the day about 5 basis points wider. And the JPMorgan Emerging Markets Bond Index Plus spread - which closed on Monday 15 bps tighter at Treasuries plus 326 bps - opened Tuesday about 4 bps wider.

"Similar activity today that we witnessed yesterday: strong start, locals long cash on the bid, then little bouts of profit-taking followed by a fairly quiet afternoon," a trader said. "Spreads are a total mixed bag. Why? It's all about Street positions at the moment, and from where I sit it's pretty apparent how most dealers are positioned. It's summer and Ramadan and thin."

Any deals that were expected to come to the market on Tuesday - like the dollar-denominated notes from New Delhi's Indian Railway Finance Corp. Ltd. - failed to materialize.

TAQA squeezed

The tone was cagey at the start of the day, a London-based trader said, with slightly better spreads and some activity among Middle Eastern names.

"Dubai's 2020s are down at 108.25," he said early Tuesday. "Abu Dhabi National Energy Co.'s (TAQA) long end is still a rock. The 2018s are now 40 bps tighter on the month."

By afternoon, TAQA saw more squeezing in the belly and long end.

Names from Saudi Arabia were popular, he said, with buyers seen for Sabic Capital.

Dar Al-Arkan International Sukuk Co. II, however, remained illiquid.

"It's carnage there recently," he said.

Bahrain gets support

Also from the Middle East, Bahrain felt well supported, with its 2020 bonds up 75 bps on the month.

"There's still plenty of support for the blue chip names," the London trader said.

The recent issue of notes from Abu Dhabi's First Gulf Bank PJSC - which priced July 26 at par - were trading at 101.12 bid, 101.37 offered early in the New York session.

And the 2016 notes from Emirates airlines were seen at 99 bid, 99.5 offered and later at 98.87 bid, 99.37 offered. That's about 4 bps wider, he said.

International Petroleum Investment Co.'s 2016 sterling notes were 37 bps tighter over the month on a significant buying program.

"The 2020s are looking OK here, having lagged the 2015s, 2016s and 2021s as of late," he said. "There's good demand again on IPIC."

Sharjah sees buyers

Buying was seen for Sharjah Islamic Bank's 2016 notes, which were trading Tuesday at 103.75 bid, 104.25 offered.

And Dubai Water and Electricity Authority's 2015s were seen at 111.25 bid, 111.45 offered.

"They've traded a little heavy of late but still offer some value," a trader said.

Laggards included Kuwait's Kipco and once-infallible Ras al Khaimah's 2014s and 2016s.

In trading among African names, spreads were doing well on improved Street bids, a trader said.

"It felt like some Afrexim 2016s came out yesterday near the 100.37 bid, 100.50 offered level," he said. "Egypt's five-year credit default swaps are at 370 [bps] bid, 390 [bps] offered as bonds hold steady."

Senegal, he said, bounced nicely. The sovereign's 2021 notes were seen at 104.5 bid, 105.5 offered on Tuesday after pricing on May 6 at 97.574.

"On the one hand, the Middle East and North Africa region remains away from the European mess and U.K. stagflation, and techincals for the most part are supportive on the majority of bonds," a trader said. "However, if we continue to perform, the supply will come out in September. And of course one has to follow the fund inflow and outflow data as the driver."

Good volumes for Turkey

Looking to Turkey, a trader said the sovereign's long end was trading 8 bps to 10 bps wider. Corporates are quiet at the moment.

By the close, good volumes were seen for Turkey's sovereign debt.

Russia's quasi-sovereign names were outperformers on the day while corporates also turned in a strong performance, with particularly good interest seen for Vimpelcom, he said.

That corporation's 2022s were off a half-point at 95 3/8, another trader said.

And the Ukraine sovereign started out on the defensive but ended the day strong while its corporates - along with Kazakhstan's banks - lagged.

"Ferrexpo is the worst performer," he said.

© 2015 Prospect News.
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