Asia ends higher for the week; Eastern Europe sees consistent deal flow; LatAm sees buyers

By Rebecca Melvin

New York, June 2 – Emerging markets saw a continuing positive tone as the holiday-shortened week concluded on Friday amid strength in U.S. Treasuries and equities on the back of mixed jobs data.

Chinese banks that have been replenishing bonds have been a focus of Asia, new corporate and sovereign paper was being eyed in Latin America, and consistent deal flow in Eastern Europe has seen strong investor demand, market sources said.

“Asia, with the exception of Australia, has been pretty strong. Chinese banks have been coming out in bonds, and we’re wrapping up four or five basis points,” a New York-based trader said late Friday.

“Most of the region’s banks are well bid, especially for shorter-dated paper,” the trader said.

In recent weeks China bank deals have included five Bank of China Ltd. subsidiaries pricing $3.07 billion equivalent of notes. Among those subsidiaries were Bank of China’s Dubai branch, which sold $650 million of floating-rate notes due 2020, Bank of China’s Macau branch, which priced $750 million of 2 7/8 notes due 2022 and $300 million of 3½% notes due 2027, and Bank of China (Luxembourg) SA, which priced €500 million of floating-rate notes due 2020.

In addition, Shenzhen, China-based China Merchants Bank Co., Ltd. issued RMB 18 billion of 4.2% three-year bonds on May 22, and Beijing-based Export-Import Bank of China (Chexim) said Friday it is offering €500 million of five-year senior notes and $300 million of three-year senior floating rate notes.

Most emerging markets trade in tandem, and the positive tone was present elsewhere, the trader said.

Guatemala’s recently priced $500 million 4 3/8% notes due 2027 were quoted at 99.1 bid, 99.27 offered at mid-morning, up from its pricing at a discount to par of 99. And Peru’s state-owned Petroleos del Peru Petroperu SA (Petroperu) began a roadshow on Friday for up to a proposed $2 billion of unsecured notes, a market source said.

The Petroperu notes (BBB-/BBB+) will mature in 15 or 30 years, S&P Global Ratings said, and will be the company’s first offering in the bond market.

Proceeds of the notes will be used to finance the additions to its main oil refinery in Talara.

Also in the new-deal space, Russia-based OJSC MMC Norilsk Nickel’s $500 million of 3.85% five-year bonds, which priced Thursday, were quoted at 99.97 bid, 100.13 offered, as compared to its initial par pricing.

Crude oil futures prices tumbled into Friday, however, and Middle Eastern sovereigns were mixed and trending downward.

Saudi Arabia’s 2 3/8% notes due 2021 were down 2 bps to 99 bid, 99¼ offered, while its 3.628% notes due 2027 were unchanged at 101.73 bid, 101.98 offered.

Egypt’s 5 7/8% notes due 2025 were down 12 bps to 99.12 bid, 99.87 offered, and its 6 7/8% notes due 2040 were down 25 bps to 99.12 bid, 95.87 offered.

In the ratings space, South Africa will get an update from S&P on Friday, a day following Fitch Ratings’ BB+ affirmation.

Market players absorbed U.S. jobs data, which had been anticipated to propel the current trajectory of U.S. Treasuries and potentially tighten bonds.

The U.S. jobs report came in mixed, with data showing slowing hiring even as the unemployment rate ticked down.

A lower-than-expected 138,000 non-farm payrolls were added in May, and the unemployment rate ticked down to 4.3% from 4.4% in April – the lowest it’s been since 2001.

The data was not expected to deter the Federal Reserve from raising interest-rates at its June 13 to 14 policy meeting, according to many sources. Fed officials have said a slowdown in inflation in March and April is probably transitory, and they are on track to raise rates to between 1% and 1.25%.

After the data, U.S. stocks and bonds continued to move up. All three equity indices closed at record highs, Dow Jones industrial average, S&P 500 stock index and Nasdaq stock market closed at record highs Friday with the Dow up 62.11 points, or 0.3%, to 21,206.29, the S&P 500 stock index adding nine points, or 0.4%, to 2,439.07, and the Nasdaq stock market gaining 59 points, or 0.9%, to 6,305.80.

In general, emerging market activity was quieting ahead of what was now considered a “summer weekend,” following the Memorial Day holiday in the U.S., a New York-based trader said.

© 2015 Prospect News.
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