EM assets jittery, illiquid as spreads widen; Caribbean Financial Group plans new notes

By Christine Van Dusen

Atlanta, Aug. 5 - An upbeat jobs report from the United States did little to soothe the frayed nerves of emerging markets investors and issuers on Friday, who no longer seemed able to ignore the negative headlines about the global economic picture.

"We've gone from being a so-called safe haven to a nervous, jittery, relatively illiquid space in a pretty short period of time," a trader said.

The JPMorgan Emerging Markets Bond Index Plus spread finished the week about 20 basis points wider, with all sovereigns widening by between 10 bps and 35 bps.

"August has arrived with a vengeance and spreads, on the week, have taken a good beating," another trader said. "And as predicted, volumes were light over the session with the combination of summer, Friday, Ramadan and people generally being exhausted."

Flows were relatively balanced, he said, with some buying of names like International Petroleum Investment Co., Abu Dhabi National Energy Co. and Dubai's DP World.

"The EM love-fest parade has certainly been rained on by a significant downpour this week, but I'm also wary of a little bounce and some sort of weekend headline from the 'powers that be,'" he said. "Of course continuing to throw more money at these issues solves absolutely nothing, but it could lead to a little rally."

Abu Dhabi names in focus

The moves and gyrations in the market have been difficult to maneuver, a London-based trader said. "Very low-ball bids are slowly improving in the better credits."

He pointed to Abu Dhabi aerospace company Mubadala, which saw some better demand for its 2014s but saw its 2021 bonds trading at 104.62 bid, 105.12 offered, or 32 bps wider on the day and 40 bps wider on the week.

"The rest of Abu Dhabi is still finding its feet but is anywhere from 20 to 50 bps wider," he said. "Dubai is trying to open about 25 to 30 bps wider. The credit has performed better than I expected in this environment, in fact the 2020 dollar notes went up earlier and are now 108.25 bid, 108.75 offered, or 30 bps wider on the day."

Qatar had a sluggish start, he said, widening about 20 to 30 bps. "Keep an eye on Qatar. It's always the first to rally after any carnage in the market," he said.

Said another trader, "I can think of worse places to park some cash than Qatar and Abu Dhabi, but as with everything, it's all about timing. And of course one has to be wary of the central bank gurus and politicians announcing something over the weekend. If client selling does accelerate and pick up, we will be reliant on cash-rich locals, soaking up paper."

First Gulf Banks bounces

In other trading from the Middle East, the recent $650 million issue of 3.757% notes due 2016 that Abu Dhabi's First Gulf Bank priced at par on July 26 started Friday at 100.30 bid, 100.80. That's 40 bps wider on the week, a trader said.

By later in the European session, the notes were trading at 100.45 bid, 100.75 offered. "They're bouncing a little," he said.

The recent issue of 2022 notes from Lebanon, an add-on to the sovereign's 6.1% notes due 2022 that priced July 28 at 99.195, opened Friday at 99.63 bid, 99.93 offered.

And the recent 5 1/8% notes due 2016 from Dubai-based Emirates airline were trading Friday at 99.50 bid, 100.25 offered, or 30 bps wider on the week.

The notes priced June 1 at 99.904 via Deutsche Bank, Emirates NBD, HSBC and Morgan Stanley in a Regulation S-only deal.

Volatile day for Turkey

From Turkey, sovereign bonds opened 2 to 2½ points lower and then recouped most of the losses before fading again at the close, a trader said.

"It's a big rollercoaster day today," he said. "Long-end papers are down circa 1¾ points again. Flows on the sovereign curve were mixed today between locals and foreigners with quite an impressive amount going through on the Street only."

On the corporate side, Akbank announced its financial results for the first half of the year, which came in line with expectations.

"We're mostly sellers of Akbank 2015s, 2018s and Garanti Bankasi AS' 2021s in scrap amounts, mostly by retail today," a trader said. "But in this environment, none of the real-money investors are dipping their toes in the market."

Roadshow begins

Puerto Rico-based consumer finance company Caribbean Financial Group Holdings LP mandated JPMorgan for a roadshow that started Friday, a market source said.

The marketing trip began in Los Angeles and will travel to London and Boston before wrapping up on Aug. 10 in New York.

A Rule 144A and Regulation S transaction is expected to follow.

And in other news, inflows for the week ended Aug. 3 totaled $1.3 billion for emerging markets bond funds, according to a report from data tracker EPFR Global.

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