Hungary concerns continue to hamper bond trading, issuance; African names may bring deals

By Christine Van Dusen

Atlanta, June 7 - There were moments on Monday when it appeared stability might be returning for emerging market issuers and investors, but headlines out of Hungary made short work of that, once again reducing risk appetite and keeping a stranglehold on new deals.

Yields rose a bit in the morning but fell again by mid-afternoon in reaction to the recent weaker-than-expected payrolls numbers from the United States and continued anxiety about Hungary's economic situation.

The tone "improved" by mid-afternoon in New York, a trader said. But the "market still feels nervy."

Said a London-based trader: "I think we were close to getting some stability in the market before the Hungary headlines hit."

Last week Hungarian officials compared the sovereign's economic situation to that of debt-saddled Greece, kicking off fears anew that the global economic crisis would continue to spread and infect more markets.

"That was poorly thought out," a Connecticut-based market source said.

The government backpedaled soon after, claiming the country's economy was improving and that the sovereign would not default on its debt. Hungary is talking to its lenders and will meet with officials from the International Monetary Fund and European Union in August.

"Hungary settled down a little" by Monday afternoon, the London trader said. "Its five-year credit default swaps traded at 420 [basis points] this morning and it's now 370 to 400 [bps]."

But still, investor fears weren't entirely soothed and the market was once again "in wait-and-see mode," he said.

The tone is going to be like this "for a while," the Connecticut source said. "We're just waiting for things to settle down a bit in the eurozone."

Quiet in secondary

Trading on Monday was "extremely thin. It's a quiet summer Monday," the Connecticut source said. "It's very quiet today. There's not a heck of a lot to report."

A market source in Brazil agreed. "The market is very quiet. It's trading sideways following the softer tone on stocks," he said. "There are no major highlights in our space, really."

Venezuela was "under pressure," the Connecticut source said, and "Argentina is a little bit weaker. But otherwise everything is just about unchanged on the day. There doesn't appear to be enough fear out there to drive markets down any further. People are waiting for more clarity."

After closing 18 to 20 bps wider on Friday, Brazil was "4 to 5 bps wider at the close" on Monday, the Brazil-based source said.

"Everything traded sideways most of the day on thin volume," he said. By day's end it was "drifting wider with the downturn in stocks."

Primary stays silent

New issuance remained stalled, though some sources were speculating that issues could soon come from a few African names. "Zambia, Ghana and Angola keep being mentioned," the London trader said.

Indeed, Zambia is looking to issue as much as $1 billion in bonds this year to fund infrastructure improvements and power plant construction.

Ghana is said to be looking at a dollar-denominated bond issue in 2011 for similar purposes.

And Angola, which initially considered bringing $4 billion in bonds to market, may sell about $2 billion by the end of the year.

Market-watchers have also been keeping an eye on Malaysia, which after its recent $1.25 billion 3.928% sukuk due 2015 - priced at par to yield 3.928%, or Treasuries plus 180 bps - was rumored to be looking to bring to market $1 billion of bonds by Sept. 30.

But sources now believe Malaysia may not need to do a deal in the near term and could put off any new issuance for a while longer. In response, the yield on the 2015 sukuk declined, a source said.

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