Spreads widen on Chinese data, Saudi turmoil, then tighten; Brazil strengthens; roadshows set

By Christine Van Dusen

Atlanta, Jan. 5 – Many emerging markets bonds at first moved wider on Tuesday – with investors remaining concerned about China’s economy and tensions in the Middle East – then tightened somewhat into the end of the session.

“A pretty tough start to the year, with credit wider and equities posting decent losses across the board as fears of a Chinese hard landing hit the market again,” a trader said. “Flows were mostly positive, with the Street market bonds and credit default swaps wider with the macro weakness.”

The execution of a prominent Shia cleric in Saudi Arabia, as well as the burning of the Saudi embassy in Tehran, also took their toll on investor sentiment, another trader said.

“After Saudi Arabia cut ties with Iran and expelled Iran’s ambassador already on Sunday, several of the kingdom’s allies followed suit,” he said. “Bahrain and Sudan declared yesterday that they too would sever their relationship with Iran while the UAE said that it is recalling its ambassador from Tehran.”

Against this backdrop, several issuers were on or were planning roadshows, including China’s Jiangsu NewHeadLine Development Group Co. Ltd., China’s Swire Properties Ltd. and China Energy Reserve and Chemicals Group Co. Ltd.

Looking to Latin America, notes from Brazil managed to open strongly on Tuesday, a New York-based trader said.

“The belly of the curve is on fire,” he said. “Not surprisingly, this segment took the brunt of the pain yesterday and, in general, the last couple of weeks underperformed.”

Sovereign credit performs

Sovereign credit from Latin America finished the day on a positive note, with spreads tightening and cash prices rising, a New York-based trader said.

Brazil’s five-year credit default swaps spreads ended Tuesday at 486 basis points from 508 bps, while Mexico’s finished at 171 bps from 176 bps.

“Cash prices are firm,” he said. “The market largely ignores curve steepening in the United States Treasury market.”

Venezuela moves lower

In other trading from Latin America, Venezuela moved lower on the back of weakening oil while Argentina moved higher, the New York trader said.

Venezuela’s 2027s moved to 39.25 from 41 while PDVSA’s 2017s closed at 51.25 from 52.75.

Argentina’s Bonar 2024s moved to 107.35 from 107, he said.

“Good two-way flows for the session, with better buyers largely present later in the day,” he said.

Turkey in focus

Bonds from Turkey – which on Monday widened as much as 13 bps – opened Tuesday a few basis points tighter as the prime minister met with the chairman of the opposition party to discuss a new constitution, another trader said.

“On valuation, Turkey does look tight versus the [emerging markets] complex, and I guess we are not seeing the benefit yet of lower oil prices come through to help inflation,” he said. “Structural issues keep inflation stubbornly high.”

Corporates from Turkey saw a little bit of demand while sellers emerged for short-dated banking bonds, he said.

“I guess, with the widening, supply is less likely to come yet, as banks and savvy corporates wait for better issuance windows,” he said.

Sellers of Qatar

From the Middle East, better selling was seen for bonds in the belly of Qatar’s curve, a London-based trader said.

“Stocks, rates and China at least had a better day than yesterday,” he said. “However, I suspect there are plenty of people scratching heads, regarding the year ahead and how to position, make money and perform.”

Liquidity for bonds from the Gulf region remained poor, he said.

Volatility should continue

Volatility is expected to continue for EM, another trader said, but issuance should pick up.

“I think 2016 will see more issuance, so this dynamic should be diluted somewhat, smoothing the positive spikes,” he said. “Issuers are finally waking up to the fact that spreads are wider and rates are moving up.”

Jiangsu NewHeadline roadshow

China;s Jiangsu NewHeadLine Development Group – via Zhiyuan Group (BVI) Co. Ltd. – is on a roadshow for a dollar-denominated issue of notes, a market source said.

The notes will be unconditionally and irrevocably guaranteed by HK Zhiyuan Group Ltd., a wholly owned subsidiary of Jiangsu NewHeadLine, according to Fitch Ratings.

Guotai Junan International is the sole global coordinator for the Regulation S deal and, with CCB International and DBS Bank Ltd., a joint lead manager and joint bookrunner.

The roadshow began on Monday.

Swire holds meetings

China-based Swire Properties held investor meetings and calls on Monday for a dollar-denominated issue of notes, a market source said.

HSBC and JPMorgan are the bookrunners for the Regulation S deal.

The notes will be issued by Swire Properties MTN Financing Ltd. and guaranteed by the company.

China Energy Reserve roadshow

China Energy Reserve and Chemicals Group will set out on Wednesday for a roadshow to market a dollar-denominated issue of notes, a market source said.

Barclays and Wing Lung Bank are the bookrunners for the Regulation S deal.

The roadshow will be held in Hong Kong and Singapore.

Tenaga could issue sukuk

Malaysia-based electric utility Tenaga Nasional is looking at a possible issue of dollar-denominated Islamic bonds, a market source said.

The size of the deal is expected to be in the billions.

Other details were not immediately available on Tuesday.

© 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.