EM spreads tighter, Middle Eastern bonds resilient ahead of FOMC news; Bahrain downgraded

By Christine Van Dusen

Atlanta, Sept. 18 - Emerging markets issuers and investors were mostly in wait-and-see mode on Wednesday as the Federal Open Market Committee continued to meet and discuss the fate of its bond-buying program, which could be reduced by as much as $10 billion.

The Markit iTraxx SovX CEEME ex-EU index spread on Wednesday opened at 218.5 basis points over Treasuries, tighter than Tuesday's 222 bps spread. The Markit iTraxx Crossover index spread - seen Tuesday at 378.5 bps - tightened 4.5 bps on Wednesday morning.

"We expect a slow and choppy market ahead of the decisions," a London-based analyst said. "Issuance is likely to be very restrained."

But the picture is expected to change dramatically after the Fed's meeting ends on Wednesday night, she said.

"We expect the issuance floodgates to open," she said.

Latin American corporate bonds saw less buying on Wednesday morning, but investors continued to look for offers as spreads tightened, a New York-based trader said.

"Overall the tone feels a touch better than yesterday, but the Street isn't chasing in front of the FOMC, even if there are still some nervous shorts out there from a few weeks back who didn't jump in with both feet last week to cover," he said. "As Treasuries sell off here, though, we are starting to feel a touch weaker now, with a few credits getting hit in the Street."

Looking at trading from the Middle East, demand was noted for Abu Dhabi National Energy Co.'s (TAQA) longer-dated bonds and DPWorld, a London-based trader said.

"Also still seeing good bids on some of the higher-yielding names," he said. "International Petroleum Investment Co. long-dated assets traded and held in very well. Bonds are holding in and client demand in the face of the U.S. Treasury move obviously meant spread tightening."

DPWorld 'resilient'

Bonds from Dubai-based DPWorld were "very resilient" in trading on Wednesday, the London trader said.

The company's 2017 notes were spotted at 108¼ bid, 108¾ offered, flat from Tuesday's close.

DPWorld's 2037s were quoted Wednesday at 99¾ bid, 100¾ offered. On Tuesday the notes were seen at 99 bid, par offered.

Perpetual notes tick down

Perpetual notes from the Middle East started Wednesday's session a "tad lower," a trader said.

Abu Dhabi Islamic Bank's perpetual bonds opened Wednesday at 98¾ bid, 99¾ offered.

Dubai Islamic Bank's perpetuals started the session at 94½ bid, 95½ offered.

Bahrain gets ratings cut

In other news from the region on Wednesday, Bahrain's government issuer rating was cut from Baa1 to Baa2 by Moody's Investors Service.

"They stated it was driven on the back of a weak fiscal position and the trend of lower economic growth over the medium-term," a trader said.

The negative outlook also reflects the high degree of event risk and the sovereign's susceptibility to regional instability.

"Nothing new there, given their location and what has occurred on the ground over the past two years," he said. "This caps a poor 24 hours for Bahrain, with Standard & Poor's placing Bahrain Telecommunications' BBB- rating on credit watch negative."

Still, spreads for the sovereign didn't move much wider, he said.

South Africa up from reoffer

South Africa's recent $2 billion issue of 5 7/8% notes due 2025 was trading Wednesday at 103 bid, 103½ offered, a trader said.

The notes priced at 98.422 to yield 6.062%, or Treasuries plus 315 bps, in a Securities and Exchange Commission-registered deal with bookrunners Deutsche Bank, Rand Merchant Bank and Standard Bank. Investec Bank plc was the co-lead manager.

The proceeds will be used to repay maturing debt and for general governmental purposes.

Gazprombank awaits FOMC

Several issuers were in a holding pattern on Wednesday as they awaited the Fed's remarks, including Russia's Gazprombank OJSC.

The Moscow-based lender was wrapping up its roadshow for a Regulation S issue of dollar-denominated notes with bookrunners Barclays, BNP Paribas, BOC International, Goldman Sachs, GPB Financial Services and Societe Generale.

"The issuer is awaiting the Fed's decision on U.S. economic stimuli on Wednesday evening and the capital markets' reaction to the news," according to a report from UFS Investment Co. "We think if this week sees no strong yield growth in U.S. Treasuries, the bank may announce the offering at the start of next week."

Depending on its duration, the bond could offer a premium of 70 bps to 90 bps over Sberbank's subordinated eurobond due in 2023, the report said.

© 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.