Emerging markets assets off on European, U.S. economic issues; Qatar, Abu Dhabi stand out

By Christine Van Dusen

Atlanta, Dec. 14 - Risk assets sold off overnight after the Federal Open Market Committee didn't suggest further quantitative easing, and on Wednesday the weakness remained.

"Weakness continued into the London open ahead of European government bond auctions and the Italian Lower chamber vote on austerity measures which will take place either today or at the latest tomorrow," according to a report from Barclays Capital Markets. "Investors seem to be repeating the 'buy the rumor, sell the fact' pattern in the wake of the E.U. summit."

This raises the question of whether investors will become more constructive about risk assets in the new year, the report said.

"We believe markets are unlikely to turn more constructive on risk until global activity stabilizes," Barclays said. "In the meantime, we expect them to trade risk sentiment tactically, rather than with a long-term view."

Against this backdrop, liquidity was patchy on Wednesday, a trader said.

"Welcome to mid-December," he said. "It was a moderately active morning but, yet again, the afternoon dragged. Qatar and Abu Dhabi, all things considered, are holding in well on a cash price basis. Spread-wise, of course, we're struggling a little."

Investors continue to square their positions ahead of year-end, he said.

"Outside of Qatar and Abu Dhabi it's getting very tricky indeed," he said.

Bahrain's 2018s moved above 104, about 50 basis points tighter from issuance.

"Buyers are sprouting up everywhere," he said. "Looks like some hands are at work in Bahrain as Mumtalakat's bonds are also doing well, popping up a lot tighter than where I thought they were."

Russia plans notes

In other trading on Wednesday, names from Kazakhstan felt heavy while better buyers were seen for Russia's quasi-sovereign bonds, including those from VTB Bank and Gazprombank.

"While ambiguity remains over a TNK-BP deal, and given weakness on the Gazprom curve, bonds keep getting marked lower on the Street," a trader said.

Against this backdrop, the Russia sovereign is looking to issue as much as $7 billion of notes in 2012, a market source said.

No other details were immediately available on Wednesday.

Turkish banks in focus

Looking to Turkey, trading was relatively quiet on Wednesday.

"Some paper is coming out on Akbank's 2015s on the Street today. They did some decent work around 96.25 throughout the day," he said. "Things only faded with the nasty price action in broader markets into the close."

In other news from Turkey, Al Baraka Turk Participation Bank - a subsidiary of Bahrain-based Islamic lender Al Baraka Banking Group BSC - postponed its planned $200 million offering of five-year sukuk notes due to unfavorable market conditions, a market source said.

The issuer had hoped to price the notes by the end of this week.

Deutsche Bank, Emirates National Bank, Noor Islamic Bank and QInvest were the bookrunners for the deal, which was first announced in November.

The notes had been whispered in the 6% area.

Primary market activity was scarce on Wednesday, though market-watchers were whispering about a possible upcoming issue of renminbi-denominated notes from Brazil.

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