EM tightens in morning, loses some ground after Fed comments; MAF, Sri Lanka notes trade

By Christine Van Dusen

Atlanta, Oct. 28 – Emerging markets assets were tightening steadily on Wednesday until the Federal Reserve’s announcement – that interest rates would remain unchanged for now but could rise in December – left many bonds only slightly narrower.

“With the Fed out of the way, the market can move on and digest the fact that nothing much has really changed and we continue to weigh economic data and global developments and their impact on EM spreads and currencies,” a New York-based trader said.

Asian bonds opened slightly softer on Wednesday, a London-based trader said, but with a mix of actions from clients.

“Spreads in general widen 2 basis points, and we saw overnight selling on the tech names’ 10 years, versus buyers on the belly,” he said.

Bonds from Korea saw some demand, particularly in the 10-year zone, he said.

Indonesia’s curve, after trading down ¼ point to ¾ point lower overnight, saw some short-covering on Wednesday morning, he said. That led the bonds higher by about ¼ point.

“But the rally faded into midday,” he said.

Latin American bonds got off to an “extremely quiet start,” a New York-based trader said. “Tough to gauge if we are inching our way a little higher here, after some profit-taking yesterday in some credits. But a firm tone is still in effect.”

Brazilian corporates remained firm, with Petroleo Brasileiro SA moving slightly higher, primarily in the belly of the curve.

Brazil-based Vale SA, meanwhile, moved 10 bps wider as iron ore prices continued to fall, he said.

Chile-based Ecopetrol SA held on after moving lower on Tuesday.

“I don’t see the catalyst to take them back up, especially after quite a nice run higher, but spreads to the sovereign look OK, so that may propel them back up. But not today, as the Fed should keep inquiry light most of today.”

CDS tighten only slightly

Brazil’s five-year credit default swaps spreads finished the day at 448 bps from 449 bps after trading as tight as 431 bps earlier on Wednesday, a trader said.

Mexico’s CDS closed at 148 bps from 150 bps.

“Cash prices are generally unchanged, with a flattening bias, post-Fed,” he said. “Seems dollar prices are outperforming spreads at the moment as the market tries to adjust to the massive curve flattening we saw after 2 p.m.”

High yield names from Latin America rallied on the day, with Venezuela getting a boost from the rally in oil, he said.

“Heavy volumes throughout the day with balanced two-way inquiries, for the most part,” he said.

MAF notes move higher

On Wednesday morning, the new issue of notes from Dubai’s Majid Al Futtaim Holding LLC – $500 million 4½% notes due in 2025 that priced Tuesday at 99.841 to yield 4.52%, or mid-swaps plus 255 bps – traded at par bid, 100.15 offered, a trader said.

Abu Dhabi Islamic Bank, Dubai Islamic Bank, HSBC, National Bank of Abu Dhabi and Standard Chartered were the bookrunners for the Regulation S issue of Islamic bonds.

The proceeds will be used for general corporate purposes.

The company is a Dubai-based conglomerate.

Sri Lanka ticks down

Looking at the new issue of notes from Sri Lanka – an upsized $1.5 billion 6.85% notes due in 2025 that came to the market Tuesday at par – traded down a point on Wednesday morning, a trader said.

“The deal size came at $1.5 billion, versus the $1 billion initially reported, and dragged the bonds lower,” he said. “Fast money acted on this, with bonds trading from 99¾ to lows of 99⅛ before seeing support come in.”

Sri Lanka’s existing curve moved lower, with the older 2025s trading down one point at 95¾, he said.

The deal drew a final order book of $3.3 billion from 290 accounts, a market source said.

About 55% of the orders went to the United States, 29% to Europe and 16% to Asia, with fund managers picking up 88%, banks 5%, private banks 4% and pension funds and insurers 3%.

Citigroup, Deutsche Bank, HSBC and Standard Chartered were the bookrunners for the Rule 144A and Regulation S deal.

Angola on deck

Investors were also keeping an eye on Angola, which is expected to print up to $1.5 billion in notes in a Rule 144A and Regulation S transaction.

The sovereign set out on Monday for a roadshow with Deutsche Bank, Goldman Sachs and ICBC International.

South Africa sets roadshow

South Africa has mandated Citigroup and Rand Merchant Bank as bookrunners for a roadshow that will start on Monday, a market source said.

The sovereign plans to update investors on recent developments.

The roadshow will start in New York and London and travel to Boston, Amsterdam, the Hague and Los Angeles before concluding on Nov. 6 in San Francisco, Munich and Frankfurt.

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