Romania sells notes; global sentiment improves, then suffers on oil news; Bahrain in focus

By Christine Van Dusen

Atlanta, Feb. 18 – Romania sold notes on a volatile Thursday, which saw global sentiment improve in the morning and then suffer on the news of an increase in stockpiles of crude oil.

“With oil and equities closing lower and United States Treasuries and credit spreads responding accordingly, the market is now a bit on edge again, with ominous 2016 market themes beginning to emerge once again after a stellar rally for much of this week,” a trader said.

Meanwhile, Bahrain was in the news on Thursday after the sovereign was downgraded by Standard & Poor’s to sub-investment grade, just as the sovereign canceled plans for a tap of its 5 7/8% note due in 2021 and its 7% notes due in 2026.

The existing notes were low in trading in the morning, with the 2021s dropping from 100.70 bid, 100.90 offered to 98 and the 2026s dipping from 97.37 bid, 97.68 offered to 95.25.

“On Wednesday a slew of semi-professional sellers indicated this was not the best placed tap in the world, however with broader markets and EM risk bid, we closed nicely off the lows,” a trader said. “Then the buyers emerged and we rallied higher. The tap was canceled, however all trades stood, as the ISIN was the same and it was immediately fungible.”

In response, shorts were “scrambling to cover,” he said. “In the up-draft, 102.50 and 100.75 traded on the 2021s and 2026s. We’ve since faded those levels and close tonight at 101.12 bid, 101.75 on the 2021s and 98 bid, 99 offered on the 2026s.”

Bahrain hurts flow traders

There were “obvious casualties” in the Bahrain story, including flow traders who were caught “wrong-footed, and basically anyone who sold bonds on Wednesday, the 17th, became a forced buyer,” the trader said.

Looking ahead, the trader believes Bahrain will be able to come back to the market.

“Ultimately, investors in Bahrain know the dynamics, know the credit and know the risks,” he said. “However the ratings move will most likely freeze plenty of lines and limits regionally.”

Middle East in focus

Elsewhere in the Middle East, trading was “very busy,” the London trader said, with both Saudi Arabia and Oman being downgraded overnight.

“Came back pretty well,” he said. “Saw adding, again, in the Abu Dhabi and Qatar space.”

Names from Dubai traded “pretty well, all things considered,” he said.

Volatile for Lat-Am

Latin American assets had a volatile session, with early morning gains eroding after oil prices reversed on the news of an increase in stockpiles of crude.

Brazil’s five-year credit default swaps spreads closed at 484 basis points from 480 bps, while Mexico’s moved to 205 bps from 201 bps.

High-yield names finished higher on the day, “despite weakness in lower-beta paper,” a New York-based trader said.

Venezuela’s 2027s finished at 39 from 38.50, and PDVSA’s 2017s closed at 45 from 43.75.

Argentina’s Bonar 2024s ended at 108.50 from 108.30.

“Cash prices remain firm as the U.S. Treasury rally kept us within yesterday’s context,” he said. “Flows on the lighter side today, compared with other days this week, with not a whole lot of conviction seen either way.”

Turkey sees softness

Trading of bonds from Turkey felt “heavy, with sellers in sovereign paper” on Thursday morning, a London-based trader said.

“We had a little bit of softness into the close, as there was a headline of an explosion in Ankara,” the strategist.

The attack could hurt the country’s eurobonds, according to a report from Schildershoven Finance BV. “Investors are worried about further terrorist attacks damaging the tourist sector and somehow impacting the political and social stability in Turkey.”

Ukraine quiet

Looking to Ukraine, bonds did not react strongly to the news that the sovereign was being sued by Russia over an unpaid $3 billion loan, said Fyodor Bagnenko, a fixed-income trader from Dragon Capital.

So far this week, quasi-sovereign and corporate bonds from Ukraine have been “very quiet,” he said.

Philippines issue draws orders

The new issue of notes from the Republic of the Philippines – $2 billion of 3.7% global bonds due March 1, 2041 that priced at par on Wednesday – came with the lowest coupon ever issued by the sovereign, according to a press release.

Citigroup Global Markets Inc., Credit Suisse Securities (USA) LLC, Deutsche Bank Securities Inc., HSBC, J.P. Morgan Securities LLC, Morgan Stanley, Standard Chartered Bank and UBS AG Hong Kong Branch are lead managers.

Proceeds will be used to repay debt and for general purposes.

The final order book was about $8 billion, with 32% from Asia, 51% from the U.S. and 17% from Europe.

Malaysia could issue

Also on Thursday, market sources were also whispering about a possible issue of dollar-denominated Islamic bonds from Malaysia by the end of the first quarter.

This news came as the country reported its economy grew by a “decent” 5% in 2015 “despite the severe headwinds from the collapse in commodity prices, the 19% plunge in [the currency] and the political uncertainties surrounding [Malaysia Development Bhd.],” according to a report from Commerzbank.

Romania prices taps

In its new deal, Romania priced €1.25 billion in taps of its notes due Oct. 29, 2025 and 2035, a syndicate source said.

The €750 million tap of the 2¾% notes due in 2025 priced at 101.688 to yield 2.55%, following talk in the 2.55% area.

The €500 million tap of the 3 7/8% notes due in 2035 priced at 99.645 to yield 3.9%, following talk in the 3.9% area.

Citigroup, HSBC, RBI and UniCredit were the bookrunners for the Rule 144A and Regulation S deal.

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