Investors trained on TAQA as spreads widen; Trading mixed; Russian bonds under pressure

By Christine Van Dusen

Atlanta, Dec. 12 - Spreads widened as investors digested the euro zone's plans for helping its debt-saddled sovereigns and as emerging markets assets had a mixed but mostly quiet session on Monday. Most investor attention was focused on the recent new issue of notes from Abu Dhabi National Energy Co. (TAQA).

"The market is clearly taking advantage of the season by opening very quietly," a London-based trader said.

The Markit iTraxx SovX index spread started the day 9 basis points wider.

"The initial euro excitement has worn off and euro periphery debt widens 20 bps," he said.

In general, trading was a mixed bag on Monday, with liquidity dropping off as the session wore on, a trader said.

"Once again the broader markets are going out on a weak footing with the usual suspects softer," he said. "It did feel like there was some nibbling of a few sukuks today. Perhaps some are positioning for January, where there may be some pent-up demand for paper."

Flows, he said, were mostly balanced during the day.

The most demand was seen for Qatar's 2017s and TAQA.

TAQA recently priced a $1.5 billion two-tranche issue of notes due 2017 and 2021 via bookrunners Bank of America Merrill Lynch, Mitsubishi UFJ Securities, RBS and Standard Chartered in a Rule 144A and Regulation S transaction.

The deal included $750 million 4 1/8% notes due 2017 that priced at 99.502 to yield 4.233% and $750 million 5 7/8% notes due 2021 that priced at 99.515 to yield 5.94%.

On Monday, the 2017s closed at 99.90 bid, 100.15 offered and the 2021s ended the session at 101.12 bid, 101.37 offered.

"I still think selling TAQA's 2018s and 2019s to move into the new 2021s makes sense," he said.

Emirates, Bahrain trade up

In other trading from the Middle East, investors remained interested in Emirates airline's 2016s.

"Those continue trading up, at 99 earlier this morning," a trader said. "They trade 50 bps through Dubai Water and Electricity Authority's 2017s, and that bond is squeezed."

The curve for Abu Dhabi's International Petroleum Investment Co. held in on Monday.

"But there are a few bonds still washing around," he said. "The 2041s were trading at 100.50 early this morning. The 2015s, 2016s and 2017s are still feeling the best placed, although it does also feel like some have moved out along the curve as some buyers of the 2020s are popping up."

Bahrain's bonds continued to perform, he said.

"The 2018s are powering along now, bid about 103," he said. "Some paper came out on Dolphin in the mid- to high-107s."

Also noteworthy, he said, was recent poor performance from Islamic Development Bank.

"It's really feast or famine on that name," he said.

Turkey in focus

From Turkey, market watchers were encouraged by better-than-expected gross domestic product growth. But the data didn't have much of an impact on sovereign and corporate bonds, a trader said.

"It's not enough to excite the external sovereign bonds," he said, "though the Turkish banks have a good bid."

Investors were nibbling on Akbank's 2015s, another trader said.

The 5 1/8% notes were trading on Monday at 95.65 bid, 96.70 offered.

"It's a very slow start to the week. Banks are outperforming sovereigns, thanks to good retail investor demand," he said. "We've seen some paper come out in small scraps on Isbank, but generally it's one-way interest on banks."

Russia's bond prices widen

Looking to Russia, quasi-sovereign bonds were under pressure, given the 5% reversal in Russian stocks, a trader said.

"It's feeling heavy today," he said.

Said another trader, "We have seen selling of some Russian-related assets, but otherwise prices have just been marked 10 bps wider."

And from Kazakhstan, lender ATF Bank was taking a beating during Monday's session.

"Poor old ATF continues to be pummeled," he said. "BTA Bank just drifts lower while Halyk Bank outperforms. And KazMunaiGaz looks rich here, versus Gazprom."

TNK-BP could do deal

The primary market was quiet on Monday, with market-watchers whispering about a possible issue of notes from Russia-based oil company TNK-BP International Ltd.

"It's going to be interesting to see if TNK pushes ahead with their deal this week," a trader said.

The company's existing 6¼% 2015 notes were trading Monday at 103.5 bid, 104.5 offered while its 7½% 2016s were seen at 106.75 bid, 107.75 offered. The Moscow company's 7 7/8% 2018s were trading at 108.62 bid, 109.62 offered and its 7¼% 2020s were seen at 105.25 bid, 106.25 offered.

"In what will likely be the last full week of trading this year, perhaps we'll see if TNK comes with a deal," another trader said. "But otherwise we expect everyone will be simply positioning ahead of year-end."

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