Morning Commentary: Trading quiet on Christmas Eve; Turkey set to steepen; Metinvest in demand

By Christine Van Dusen

Atlanta, Dec. 24 – Trading of emerging markets assets was quiet on Thursday, with liquidity thin on Christmas Eve and names like Brazil mostly unchanged, while Turkey's curve appeared to be on the cusp of steepening.

“The long end was trading well and the curve has stayed flat as we had buyers of duration, but it looks like we are about to steepen as we see real-money buyers appear in the belly,” a London-based trader said. “Cash looks a bit tight to credit default swaps so may lag the move there.”

The lack of supply in Turkish corporates is keeping bonds tightly held, he said.

“I hope to see some new credits in the space, but given the credit lines received from local international banks, we may not see it,” he said.

Banks from Turkey continued to trade well, another trader said, on the news that Turkish bank regulators are looking to cut risk weights to loans.

That’s an “interesting step, as they have normally been seen as quite prudent and this seems more like a pro-business and economic step to help grow lending,” another trader said. “It will be interesting [to see] how aggressive the changes are. We should see capital ratios – on the face of it – improve, but in reality the risk is same, just another accounting and regulation skew to deal with when looking at the numbers.”

Ukraine-based Metinvest BV saw a tiny bit of demand, with quotes pushed up about a point, said Fyodor Bagnenko, a fixed income trader from Dragon Capital.

Looking to Azerbaijan, trading was quiet on Thursday, but traders were looking ahead to the new year, when the sovereign’s bonds are expected to be a good value and “better prepared for a continued downward cycle in commodities,” he said.

Overall, Thursday looked to be “another firm session on what will be limited activity,” another trader said.

“Commodities [are] bouncing on hopes that United States growth with a stable China will be able to hold up the macro picture,” he said.

Said another trader: “No screen activity and some bid-offer lists popping up, but nothing notable.”

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