EM spreads unchanged or wider, flows moderate; Yapi Kredi plans dollar notes; inflows drop

By Christine Van Dusen

Atlanta, March 1 - Emerging markets bond spreads ended unchanged or slightly wider on Friday, ending a topsy-turvy week that saw investors go from concerned to nonchalant about the uncertain outcome of the Italian elections.

Sovereign spreads started the week unchanged but moved wider on Tuesday and Wednesday before narrowing on Thursday and flattening on Friday to Treasuries plus 180 basis points. Corporate spreads tightened 7 bps on Thursday, then widened by 3 bps on Friday to a 230 bps spread.

"Spreads on the week are a real mixed bag," a trader said. "Flow-wise, it was moderate."

In the end, the outcome of the Italian parliamentary election didn't have the "market-rattling" effect expected for emerging and global markets, according to a report from Barclays.

But more volatility is likely - and that could be a good thing for emerging markets bonds, Barclays said.

"Central banks are likely to stay accommodative for longer, keeping global rates range-bound," Barclays said. "We think benchmarked investors should actively manage duration exposure."

The bank recommends extending duration on local curves in India, Singapore, Thailand, Mexico and Turkey.

In trading on Friday, investors mostly focused on the new issues from Dubai Electricity and Water Authority and Abu Dhabi Commercial Bank PJSC.

"The Middle East and North Africa are seeing a slow start, but steady," a London-based analyst said.

Said a London-based trader who focuses on the Middle East, "Little sprinkling of activity today, despite many locals being out."

Inflows decline

In other news, inflows into emerging markets bond funds took a dive for the week ended Feb. 27, dropping to $684 million from the previous week's $901 million, according to a report from data-tracker EPFR Global.

"Investors struggled to regain their bearings in late February as Italy's electorate threatened to bring the euro zone debt crisis out of hibernation," the report said.

China-focused bond funds attracted the most money during the week.

"Overall, flows continue to favor Europe-domiciled funds over their US counterparts," the report said.

DEWA bonds perform

The recent 2018 sukuk from Dubai's DEWA closed Friday at 100 3/8 bid, 100½ offered after pricing at par to yield 3%, or mid-swaps plus 223.4 bps.

"Holding very steady," a trader said. "Performed very well."

Abu Dhabi Islamic Bank, Citigroup, Dubai Islamic Bank, Emirates NBD, RBS and Standard Chartered Bank were the bookrunners for the Regulation S deal.

"Book stats show that 65% was placed into the Middle East," he said. "That is probably up near 75% now."

Buyers for ADCB

More buying was noted for the recent 2023 notes from Abu Dhabi's ADCB, which priced this week at 99.127 to yield 4.61%, or mid-swaps plus 265 bps.

"Buying pushed that bond up to 101 before some profit-taking saw it close at 100 5/8 bid, 100 7/8 offered," a trader said.

Abu Dhabi Commercial Bank, Barclays, ING, JPMorgan, National Bank of Abu Dhabi and RBS were the bookrunners for the Regulation S deal, which included a 2018 tranche that has not been as well received.

"I'm not entirely sure where next supply will come from, but I suspect many issuers have seen the success of ADCB - well, the higher-yielding deal, at least - of Emirates airline's 2025 after a slow start and of DEWA's 2018s and are sharpening their pencils."

ADIB continues 'strong run'

Abu Dhabi Islamic Bank's perpetual notes remained mostly solid on Friday, closing at 105.12 bid, 105.62 offered after Thursday's levels of 104¾ bid, 105¾ offered.

"ADIB's perps continue their strong run," the London trader said. "Bond of the week? I'm tempted to give it to ADIB perps. But really I have to take my hat off to ADCB's 2023s."

Some paper was seen for long-dated notes from Qatar, with the 2040s and 2042s trading down at certain points in the session.

"The front end is holding firm, however, in Qatar," he said. "And Qtel trades well, despite being placed on 'watch negative' a week ago today."

Middle East trading improves

A trader was also keeping an eye on bonds from Abu Dhabi's TDIC.

"They've had a superb month, with all loose bonds disappearing," he said.

He also noted that buyers were seen for International Petroleum Investment Co.'s 2041s.

"Small nibbling on Kipco, and sellers of Aldar Properties' 2014s," he said.

And from Ukraine, bonds continued to perform well at the end of the week, said Svitlana Rusakova of Dragon Capital.

Turkish banks in focus

Also on Friday, Turkey-based Yapi ve Kredi Bankasi AS (Yapi Kredi) was planning an issue of up to $2 billion of notes within a year, a market source said.

No other details were immediately available on Friday.

This followed the late-Thursday pricing of Turkey-based lender Turkiye Garanti Bankasi AS (GarantiBank)'s 50 million Turkish lira issue of 7 3/8% notes due March 7, 2018.

The notes came to the market 99.487 to yield 7½%, matching talk.

BNP Paribas, Deutsche Bank, Goldman Sachs, Mitsubishi UFJ Securities and Standard Chartered Bank were the bookrunners for the deal.

© 2015 Prospect News.
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