Strong demand for new Tajikistan, Uruguay deals points to ongoing constructive tone in EM

By Rebecca Melvin

New York, Sept. 7 – The inaugural dollar issue of the Republic of Tajikistan met with strong demand on Thursday pushing final terms well below initial talk. And a local currency deal from the government of Uruguay was also warmly received, demonstrating an ongoing supportive tone for emerging markets sovereign debt in both major and local currencies, a New York-based strategist said.

Tajikistan is untested and Uruguay has been largely ignored, so seeing the type of receptions both deals had sends a message about the state of the global pool of funds and access to it, Michael Roche, emerging markets fixed-income strategist for Seaport Global Securities LLC, told Prospect News.

The Uruguay notes maturing in March 2028 will be settled in dollars. The fact that the issue has become part of J.P. Morgan’s Global Bond Index for Emerging Markets “created instant demand” for the new issue, Roche said.

Pointing to demand for Tajikistan’s debut in the international borrowing space that prompted a reduction in talk from 8% initially to 7 1/8% was also indicative of a market that is galvanized to participate in areas where decent yield can be achieved, Roche said.

For further evidence, Roche noted that Turkey priced a $1.75 billion add-on to its 2047 notes this week, and Ukraine, Empresa Nacional del Petroleo (ENAP), Chile’s state-owned energy development and production company, Mexico City Airport and Coca-Cola Icecek AS are all on the calendar for pricing new notes issues imminently.

The constructive tone encompasses a broad range of both sovereigns and corporates and high and low quality credits, Roche said.

It has been a case for several months that yields on emerging markets bonds have stabilized, but there has not been much continued progress toward lower yields, Roche said. “It’s not been severe enough to spark outflows.”

Emerging market sovereign yield first encountered a yield of 5.3% in July 2016. Since then it has gone up and down but remains resilient.

Meanwhile, the spread over Treasuries for J.P. Morgan emerging market issues sticks between 318 basis points to 335 bps, a spread first encountered in April.

In the secondary market, the emerging markets had a “solid” market tone on Thursday, but not as strong as on Wednesday, MUFG Securities analyst Trieu Pham wrote in a note.

© 2015 Prospect News.
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