Turkey, Syria, G8, Fed distract EM investors, keep trading thin; African deals ahead

By Christine Van Dusen

Atlanta, June 17 - Trading of emerging markets assets remained thin on a moderately active Monday that saw investors keeping a close eye on Turkey, Syria and the Group of Eight summit while anxiously awaiting Federal Reserve Chairman Ben Bernanke's remarks on Wednesday.

Bernanke is expected to address the question of whether the Fed will cut back on the bond-buying program that was intended to shore up the United States' economy.

"Investors have a lot to focus on this week with the G8, Bernanke's speech and Syrian developments all likely to shape how the market is performing," a London-based analyst said. "The continued riots [in Turkey] are likely to affect sentiment this week, however given the substantial pipeline of events, we believe the focus on the riots will subside."

The Markit iTraxx SovX CEEME ex-EU index spread on Monday moved to 209 basis points over Treasuries, wider by 2 bps from Friday. The Markit iTraxx Crossover index spread, which had ended the previous week wider at 448 bps over Treasuries, tightened to 444.5 bps on Monday.

"Spreads performing with the 10-year Treasury at 2.135% in what is shaping up as a big week news- and headline-wise," a London-based trader said.

In trading from Latin America, bonds from Venezuela and Petroleos de Venezuela SA (PDVSA) continued to decline on Monday after Standard & Poor's downgraded the sovereign's foreign currency rating from B+ to B, a New York-based trader said.

The ratings move came in response to the country's uncertain political climate and questionable economic policies, according to the agency's report.

Venezuela gets downgrade

The outlook on the long-term ratings for Venezuela is negative.

"The downgrade on Venezuela reflects the government's diminishing ability to implement measures to reverse declining GDP growth, rising inflation, and weakening external liquidity in the context of growing political disagreements within the administration," said S&P credit analyst Sebastian Briozzo in a news release. "Growing political uncertainty is weakening the implementation of economic policies and may possibly undermine governability."

Venezuela's 2027 notes started Monday at 88¼ but moved down to 85, the trader said. PDVSA's 2017s were seen early in the session at 93½ and dropped to 911/4.

Lat-Am corporates take a hit

Latin American corporates had been expected to put in a positive session on Monday, but they "never picked up steam," another New York-based trader said.

"We finally gave the morning gains back and a lot more," he said. "The herd mentality came into focus again as a few bids got hit and then dealers started perusing the screens for any decent bids to tag."

Among the names to take a hit on Monday afternoon were Mexico-based Cemex SAB de CV's 2022s, Brazil-based Braskem's 2022s and Brazil-based Vale SA's 2022s and 2042s.

"Odebrecht paper, which had made strong gains on Friday, saw marked weakness again with little to no support on the follow," he said. "More proof of the paradigm taking shape, regarding the approach to risk right now."

Turkish CDS widen

The protests in Turkey picked up steam over the weekend, despite a successful meeting between the prime minister and demonstrators that had been expected to reduce tensions.

"Overall we believe both sides said what they wanted over the weekend, and any further escalation is unlikely in our view, especially ahead of elections early next year," the London-based analyst said.

Credit default swaps for the sovereign widened on Monday.

"Turkey CDS opened 3 bps wider while sovereign cash is 1 point to 1½ points down, with corporates also falling," she said.

The situation with bonds and spreads in Russia was a bit better, with buyers trickling in on Monday.

Middle East in focus

Looking to the Middle East, two-way activity was noted for Emirates NBD's recent perpetual notes between 92¾ and 931/2, following last week's low of 91.62.

"Saudi Electricity Co. is still seeing paper around on the 2043s, and on the flip side, buyers of the 2023s," a trader said. "Buyers are around on Abu Dhabi Commercial Bank's senior and subordinated notes. The 4 ½% 2023s are back in the game, about 30 bps better on the week."

Emirates Islamic Bank saw buyers and sellers for its 4.147% 2018s.

"The bond has pulled back 45 bps on the month," he said.

Jafza attracts nibbles

Buyers were sighted on Monday for Dubai-based Jebel Ali Free Zone's (Jafza) 7% 2019 notes at the 111 area, following a pricing at par.

"Retail investor nibbling, out of the gate," the analyst said. "Spreads are a couple tighter overall."

As Bahrain continued its roadshow for a benchmark-sized and dollar-denominated issue of notes, the sovereign's existing 2022s perked up a bit at the end of the day. The bonds had been suffering, moving about 100 bps on the month.

"That's a real underperformer and is looking like a value versus the Dubai curve," a trader said.

Corporates less liquid

Corporate bonds from the Middle East were less liquid on Monday, though Abu Dhabi National Energy Co., International Petroleum Investment Co., Qtel International and Dubai Electricity and Water Authority were "still OK," the London trader said.

"Kipco is generally painful and kept off the screen," he said. "It's very thin, this market, and with one eye on summer and Ramadan it will get tricky on certain bonds. The credits who have come to the market and established their curves are certainly more liquid, as dealers have more points to hedge exposure and trade around."

BankMuscat trades down

The 2½% notes due 2018 that Oman's BankMuscat priced in March at 99.302 were seen trading on Monday between 98 and 98 3/8, a trader said.

Citigroup, Credit Agricole CIB, Deutsche Bank, HSBC, National Bank of Abu Dhabi and Standard Chartered Bank were the bookrunners for the Regulation S deal.

"A couple of accounts that are not in the market on a day-to-day basis had started to dip their toe last week, and it feels like few dealers may have been wrong-footed by the thinking that they would run into more paper this week," he said.

Nigeria sets roadshow

In deal-related news, Nigeria has mandated Citigroup and Deutsche Bank to market up to $1 billion of notes during a roadshow, a market source said.

The marketing trip will take place in Europe and the United States.

In May the sovereign announced plans for dollar issuance in June, with the proceeds for funding power projects.

Fidelity, Kenya deals ahead

Nigeria's Fidelity Bank plc could issue dollar-denominated notes by October, a market source said.

No other details were immediately available on Monday.

And market-watchers were whispering about Kenya's upcoming issue of eurobonds, which could take place by September.

Asia Capital, Indian Oil deals

Singapore's Asia Capital Reinsurance is looking to issue Singapore dollar-denominated notes, a market source said.

New Delhi-based Indian Oil Corp. Ltd. will price dollar-denominated notes due in five years, a market source said.

Bashneft picks banks

Russia's JSOC Bashneft has mandated Barclays, Citigroup and Sberbank as the bookrunners for a dollar-denominated issue of notes that will be marketed during a roadshow, a market source said.

The marketing trip for the Rule 144A and Regulation S deal will begin on Wednesday and take place in the United States and the United Kingdom.

Banks buy BDC bonds

The recent issue of notes from Santiago-based Banco de Chile SA - CHF 225 million notes due 2016 that priced at par to yield Libor plus 60 bps - drew 85% of its orders from banks, a market source said.

Another 13% came from asset managers and 2% from private banks.

BNP Paribas and Deutsche Bank were the bookrunners for the deal.

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