Santander Mexico sets talk; EM bond spreads tighten; Ukraine, Turkey remain in focus

By Christine Van Dusen

Atlanta, Dec. 18 - Banco Santander Mexico set talk on Wednesday as emerging markets bond spreads narrowed again and investors watched the political developments in Ukraine and the corruption scandal in Turkey.

The Markit iTraxx SovX CEEME ex-EU index spread opened at 309 basis points over Treasuries, tighter than Tuesday's 314 bps spread.

"An exceptionally active day in [emerging markets] yesterday in terms of news, with reports of arrests in Turkey related to corruption, and Russia agreeing to purchase $15 billion of bonds from Ukraine," a London-based analyst said.

On this news the Ukraine sovereign climbed as much as 6 points on Tuesday, with some bonds changing hands at the 9% yield mark, said Svitlana Rusakova of Dragon Capital.

"Quasi-sovereigns, with their yield pickups, may see further spread compression as there should be some yield hunt in a more stable scenario," she said on Wednesday. "Corporates have been much more lower-beta in the last few months, so the bounce there was a little less pronounced."

On Wednesday the sovereign's bonds also got a price boost from the news that Ukraine could issue as much as $3 billion of bonds with two-year tenors.

"Yesterday, short-dated bonds responded very well, with the Ukraine 2014s now trading around par, having traded at 97 to 98 yesterday morning," a trader said.

The concern now is for the economic future of the country, given that the chances of a European agreement seem scarce, she said.

In other news on Wednesday, Azerbaijan has mandated Barclays, Citigroup and Deutsche Bank as bookrunners for an issue of up to $1 billion of bonds, a market source said.

The sovereign first announced plans for a debut bond issue in 2007, but the deal never came to the market.

Turkey scandal hits bonds

Looking to Turkey - where at least 84 people have been arrested amid allegations of bribery related to construction projects - sovereign and bank bonds were wider by as much as 5 bps from Monday, a trader said.

Turkey's Turkiye Halk Bankasi "has been hit hard, 25 bps wider," she said on Wednesday.

Halkbank's chief executive officer was among those arrested, along with the economy minister's son and the interior minister's son.

Low activity for Russian bonds

Activity was low for Russian corporate bonds on Wednesday morning, following some significant buying on Tuesday of notes from OAO Severstal, OJSC MMC Norilsk Nickel, OAO Lukoil, Vimpelcom and Gazprom, the analyst said.

This was in spite of the reduction in gas prices promised to Ukraine, she said.

"Russian banks were also well bid, 5 bps wider since Monday," she said.

Santander Mexico sets talk

Banco Santander Mexico, a subsidiary of Spain's Banco Santander SA, set talk at 6½% for an issue of $1 billion 10-year hybrid notes, a market source said.

The securities will take the form of Basel III-compliant, tier 2 subordinated notes.

Banco Santander plans to purchase about 75% of the new instruments issued by Banco Santander Mexico, as well as those not purchased by third parties, according to a release from the company.

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