Lat-Am bonds see sellers after America Movil hybrid deal; spreads tighten; volumes stay thin

By Christine Van Dusen

Atlanta, Sept. 3 - Sellers came out in force on Tuesday for many emerging markets bonds, particularly from Latin America, as uncertainty about Syria remained and investors attempted to digest Monday's hybrid deal from Mexico-based America Movil SAB de CV.

"Swamped," a New York-based trader said. "Clients are trying to sell like crazy."

U.S. Treasuries opened Tuesday slightly weaker at 2.84%, and most of Central and Emerging Europe, the Middle East and Asia saw generally tighter spreads.

The Markit iTraxx SovX CEEME ex-EU index spread on Tuesday opened at 250 basis points over Treasuries, tighter by 2 bps from Monday. The Markit iTraxx Crossover index spread - seen Monday at 428.5 bps - narrowed to 415.5 bps on Tuesday morning.

Credit default swap spreads for Turkey started Tuesday's session about 3 bps tighter.

"However, Qatar and Saudi Electricity Co. and other low-betas are ticking lower with rates," a London-based trader said. "The Qatar 2023 sukuk is the worst performer on the month on that curve."

Some sellers were spotted for Qtel International's long end and Abu Dhabi National Energy Co.'s (TAQA) long bonds.

"Felt like some TAQA 2023s have come out," he said. "They traded at 92¼ first thing and closed 92, offer side."

By the end of Tuesday's session, spreads closed a little bit tighter, the London trader said.

"Fairly lackluster effort from the market, post-the U.S. holiday," he said.

This followed Monday's relief rally on the news that President Obama would seek authorization from Congress to intervene in the Syrian conflict, which would likely delay action.

"A very quiet session yesterday with the United States on holiday. Asia is generally seeing a better tone this morning," a London-based analyst said. "We are also seeing some retail buying of VTB and Turkish banks."

America Movil sells notes

In its new deal, Mexico-based telecommunications company America Movil priced two tranches of notes totaling €1.45 billion and one tranche of notes totaling £550 million, a market source said.

Deutsche Bank, Barclays and BNP Paribas were the bookrunners for the hybrid deal.

The transaction included €900 million 5 1/8% notes due 2073, non-callable for five years, that priced at 99.463 to yield 5¼%, or mid-swaps plus 385 bps.

The second tranche of euro notes, €550 million 6 3/8% notes due 2073, priced at 99.98 to yield 6.517%, or mid-swaps plus 430 bps.

The sterling tranche, £550 million 6 3/8% notes due 2073, priced at 99.437 to yield 6.478%, or mid-swaps plus 410 bps.

Venezuela prices decline

Taking a closer look at trading from Latin America, spreads ended the session almost flat to Friday's levels, a New York-based trader said.

Bonds from Venezuela and PDVSA saw prices fall as much as 1¼ points, while bonds from Argentina outperformed, closing up on the day.

Ukraine quiet

So far this week, levels have been mostly unchanged for bonds from Ukraine, said Svitlana Rusakova of Dragon Capital.

"We saw some bottom-fishers in Belarus while Ukrainian names were all quiet," she said.

In trading from the Middle East and North Africa, volumes and investor inquiries were light, the London-based trader said.

"Slow start, all told," he said.

Some Gulf names steepen

Some steepening has been seen from Emaar Properties, Emirates and Dubai Electricity and Water Authority (DEWA) during the past month, the London trader said.

"DEWA's 2015s and 2016s holding very well against selling pressure on the 2018s and 2020s," he said. "It's interesting to see the 2018 sukuk underperform the 2016s by almost 40 bps on the month."

Bahrain's 2023s were spotted Tuesday at 97 bid, 97¾ offered, up from the previous week's low of 96, a trader said.

"Bahrain bounced back a little from lows of last week," he said.

Middle East in focus

Dar al-Arkan's 2015s and 2018s moved lower, with the 2018s trading at 95, about 20 bps wider.

"Some paper must have come out on Dar al-Arkan, with both marked lower," he said. "The 2015s were especially very well offered."

Perpetuals moved off the previous week's lows, with Abu Dhabi's notes trading at 97¼ bid, 98¼ offered after pricing at par.

Dubai Islamic Bank's perpetual notes, which also priced at par, were seen Tuesday at 94 bid, 95 offered.

Bonds flat or slightly lower

Bahrain Telecommunications Co. (Batelco) saw its 2020 notes close Tuesday at 89¾ bid, 91¾ offered, unchanged from Monday, a trader said.

Dolphin Energy's 2019s ended Tuesday at 109 bid, 109¾ offered after finishing Monday at 109.12 bid, 109.87 offered.

Jordan's 2015s closed Tuesday at 99 bid, par offered, unchanged from Monday.

And Lebanon's 2022s closed at 96 bid, 97½ offered after finishing the previous day 96 bid, 97 offered.

More outflows for EM

In other news, emerging markets bond funds saw outflows of $2.02 billion for the week ended Aug. 28, according to a report from data-tracker EPFR Global.

That's up from the previous week's $1.3 billion in outflows.

"Once again emerging markets and United States municipal bond funds were the biggest contributors to the overall outflows," the report said.

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