Bolivia prints first notes in almost a century on quieter, low-volume day for EM assets

By Christine Van Dusen

Atlanta, Oct. 22 - Bolivia on Monday printed its first issue of global notes in more than 90 years as trading remained slow for emerging markets assets following a fairly negative Friday.

"Another day of slack trading in the corporate bond market amid low trading activity," according to a report from UFS Investment Co. "In the morning external background was moderately positive."

Most sovereign bonds also had a ho-hum session on Monday, with names like Dubai ticking up only slightly. The country's 2020s were seen Monday at 121 bid, 121.75 offered after Friday's level of 120.87 bid, 121.62 offered.

Dubai Electricity and Water Authority's 2015 notes dipped a touch, quoted Monday at 113.38 bid, 114.12 offered after Friday's levels of 113.87 bid, 114.62 offered.

Meanwhile, the primary market was mostly quiet following last week's frenzy of new issuance.

In its new deal, Bolivia priced $500 million of 4 7/8% notes due Oct. 29, 2022 at par to yield 4 7/8% via Bank of America Merrill Lynch and Goldman Sachs in a Rule 144A and Regulation S deal.

And from Brazil, Odebrecht Finance gave price guidance in the 6% to 6.4% area for a $450 million tap of its 7 1/8% notes due 2042 via BNP Paribas.

The company, part of conglomerate Construtora Norberto Odebrecht SA, also announced a tender offer.

"Talk of new issue supply did put some slight pressure on prices in the higher-rated Latin American bonds," a New York-based trader said.

Said another trader, "Odebrecht paper was lifted early in the session only to come back down hard after their tender announcement and subsequent tap of the '42s."

Lat Am unchanged or down

But for the most part, sovereign bonds from Latin America were mostly unchanged on Monday. Argentina's Boden 2015s were a standout during the session, trading at 90 after closing Friday in the 89.15 area.

"Volumes were lighter than the prior week, as it seems the increased volatility is equity markets the last few days pushed some to the sidelines," the New York trader said.

On the corporate side, bonds were down on Monday, another New York-based trader said.

"Spreads widened on most high-grade credits, even as Treasury yields ticked up throughout the session," he said. "Street as well as customer flows had their overall light, Monday rhythm."

Some sellers did emerge, he said.

Gazprombank oversubscribed

Demand for the recent $1 billion issue of 7 7/8% perpetual notes from Russian lender Gazprombank reached as high as $12 billion, a market source said.

The Regulation S notes priced Friday at par to yield Treasuries plus 711 basis points, tighter than talk, via bookrunners Credit Suisse, GPB Financial Services, Goldman Sachs and HSBC.

"During the placement the benchmark coupon was several times cut due to huge, excessive demand," according to a report from UFS Investment Co. "The issue will continue to grow in the secondary market; the price has by now reached 100.5% of the nominal."

The spread, relative to comparable issues, has contracted to 285 bps, UFS said.

"At the same time, the spread between the VTB perpetual eurobond and its senior bonds already totals 385 bps. We still expect this spread to continue narrowing and recommend buying the VTB perpetual eurobond," UFS said.

Ukraine bonds peter out

Looking to the Ukraine, eurobonds "ran out of steam" as spreads moved wider amid limited sovereign supply, said Svitlana Rusakova of Dragon Capital.

Ukraine's 2017s were seen at about 109 bid, 110 offered. The sovereign's 2020s were mostly unchanged at 104.50 bid, 105.50 offered. The 2021s didn't move much either, quoted at 105.50 bid, 106.50 offered.

Even though the Ukraine government warned that limits could be imposed on wheat exports next month, corporates like Mriya Agro Holdings were stable, she said.

Demand for HCFB notes

The recent $500 million issue of 9 3/8% notes due April 24, 2020 that Russia's Home Credit and Finance Bank (HCFB) priced at par was 5.7 times oversubscribed, a market source said

The notes yielded 9 3/8%, or Treasuries plus 862.4 bps, with bookrunners Citigroup, HSBC and Sberbank in a Rule 144A and Regulation S transaction.

The deal drew in more than 180 investors, the source said.

CDS spreads widen

Spreads for credit default swaps from many emerging markets have been widening, creating some compelling trading opportunities, according to a report from Barclays.

The bank recommends selling the 10-year basis in Mexico and Brazil.

"Over the past few months, credit has outperformed other asset classes in EM," the report said. "This outperformance reflects, we think, a combination of firm global risk appetite and the general hunt for yield, as well as some helpful supply and flow technicals."

Flows have been chasing sovereign paper, which has been scarce and generally has outperformed CDS.

"Across EM sovereigns, we think Mexico and Brazil offer the best opportunities to sell the basis, particularly in the 10-year sector," the report said. "In the current environment, we prefer to overweight high yielders, reallocating from tight low-beta names such as Brazil."

This strategy carries some risk, Barclays said.

"If the rally continues, the basis could widen further," the report said. "Yet current levels offer an attractive cushion, in our view, and the balance of risks seems positively asymmetric."

Andrea Heisinger contributed to this article.

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