Turmoil in Ukraine, good jobs data from U.S. make for mixed day; Middle East bonds stay strong

By Christine Van Dusen

Atlanta, March 7 - As investors' eyes remained trained on Ukraine and the positive jobs data from the United States, some bonds from the Middle East managed to outperform on Friday, including the recent perpetuals from the United Arab Emirates' Global Education Management Systems Ltd.

"The first week of March has come and gone, and there's been a slight change in sentiment and market dynamics," a London-based trader said. "Spreads have largely moved against the backdrop of the Ukraine situation this week, with the 10-year Treasury moving between 2.59% and 2.74%. March has started off a lot more two -way, with some international real-money lightening up and some profit-taking."

On Friday, President Barack Obama criticized Russia's intervention in Crimea and Russian President Vladimir Putin asserted the country was acting in accordance with international law.

In response, "Central and emerging European fixed income drifted in the direction of least resistance, which was towards lower yields," according to a report from Erste Group Research.

Friday also saw the U.S. release better-than-expected job creation numbers for the month of February, which made for a mixed session on the stock market.

Meanwhile, in the Middle East, the biggest driver was the news that ambassadors from Saudi Arabia, Bahrain and the United Arab Emirates were leaving Qatar due to security concerns.

"I don't think it should come as a massive surprise to regular followers of the region, however I do acknowledge the significant diplomatic move to remove these envoys," the London trader said. "Whether this turns and develops into something move severe is yet to be seen. Obviously, however, I would assume calmer heads will prevail; it doesn't serve anyone's interests for an escalation of developments."

Sellers emerge

Since the Qatar-related headlines surfaced earlier this week, investors have been selling Middle Eastern assets to lock in gains, a trader said.

"The region has had a good run, has outperformed other markets, lacks a massive short base and should be seeing some supply towards the end of the quarter and the month," he said. "Local accounts still are flush with liquidity."

GEMS outperforms

The GEMS perpetuals, which came to the market at par to yield 12%, tightened 30 basis points to trade Friday with a 114 handle, the London trader said.

"Really impressive as the free float disappears," he said.

Other solid performers included Mumtalakat's 2015s and Dar al-Arkan Holdings. The latter had lagged in January, he said.

"For Lebanon I've seen good real-money interest this year, and that continues," he said. "This credit is very defensive. There is some talk of a new issue and tap coming up."

IPIC, Kipco stand out

Also trading well during the week was International Petroleum Investment Co. and its 2022s, which on Friday closed 6 bps tighter at about 112 7/8, a trader said.

"Kuwait Projects Co. is still trading well, as is Burgan Bank," he said. "Kipco's 2020s are 10 bps tighter on the week."

Supply from Kuwait and its corporates is likely to be limited, going forward, he said.

Some bonds widen

Several bonds from the Middle East widened during the week, a trader said, including those from Qatar National Bank and Dubai.

"This is probably the first week this year where I can say there have been more credits widening than tightening," the trader said. "And ultimately I think that's healthy to have a bit more two-way, with more bonds moving around and differing views.

Bahrain's bonds were about 25 bps wider on the week.

"That makes Bahrain Telecommunications Co. an interesting one," he said. "They have traded between 96.87 and 97½ over the past 48 hours."

Ukraine in focus

Taking a closer look at Ukraine, the market remained "very volatile and headline-driven" at the end of the week, said Svitlana Rusakova of Dragon Capital.

"News flow from Crimea led to some bids getting hit, though liquidity has remained there," she said.

Sovereign bonds closed off about 1 point into the end of the week, she said.

"Corporates, on the other hand, started catching up, with several issues closing higher," she said.

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