Emerging market debt indecisive in trading; Poland's sells upsized €3 billion notes due 2020

By Reshmi Basu and Paul A. Harris

New York, Jan. 11 - Emerging market debt was caught in limbo Tuesday with no apparent drivers to move it along one way or another.

"Trading was mixed today [Tuesday] - nothing too exciting, overall," said a trader.

Nonetheless, Poland managed to sell €3 billion of notes in a deal doubled in size from the originally announced amount - and they moved up smartly in secondary trading.

But overall it was hard to get a feel for what was pushing the market Tuesday, sources said.

"It's hard to say right now," commented the trader.

"One day, it seems technicals are fine and everything. Every time, it gets higher, people are trying to pull the market off. Sellers just come out - either they are taking profits or just trying to drive the market lower.

"It just seems pretty stagnant - just going up or down. No real flows going on," he noted.

"There were some local sellers this morning, but trading died down in the afternoon.

"There wasn't too much flow, added the trader.

During Tuesday's mixed session, the Brazil C bond lost 0.68 to 99.82 bid while the bond due 2040 rose 0.90 to 113.40 bid. The Mexico bond due 2009 fell 0.050 to 121.60 bid. The Russia bond due 2030 gained 0.305 to 102.18 bid. The Venezuela bond due 2027 added 0.20 to 102.60 bid.

"Today [Tuesday] the market recovered part of yesterday's loss, but it's pretty flat at the closing," said a sellside source.

In general, the market had a difficult time finding direction as drivers negated each other, according to Latin America debt strategist Enrique Alvarez at think tank IDEAglobal.

On one hand, there was positive news in the U.S Treasuries market. The yield on the 10-year note stood at 4.24%, down from Monday's 4.28%.

"In turn, you had a counter-argument that though the dollar has slipped, the Brazilian real has also slipped," said Alvarez.

"There are offsetting influences there. I don't think the market has a clear price driver here. I think it is more a 'breathing a sigh of relief' after the pressure we saw yesterday [Monday]."

Meanwhile, the Ecuador bond due 2012 added 0.20 to 102.20 bid while the bond due 2030 gained 1¼ points to 86 bid.

"I think you may have a tiny bit of enthusiasm regarding the upcoming announcement for some sort of swap offering for its '12," remarked Alvarez.

"But other than that, I think the market is at the lower edge of the range and is searching for price drivers."

Waiting for new supply

Yet again, there were rumors that Brazil would tap the market Tuesday. As per usual, the rumors did not pan out.

"Someone mentioned today [Tuesday] that it was a definitive date that we would see something as far as Brazil and that proved to be not true," commented Alvarez.

"Everyone is fully aware of coming issues. There's all sorts of talk in the pipeline - you'll see dollar Turkey, local markets Brazil."

The expectation of new supply in January has been credited for the market's softness, but when investors will actually see the new paper remains unknown.

"I guess the basic truth is that the supply has to come sooner or later, so the market has to be forward looking and price the supply in now," said an emerging market analyst.

"Brazil has to do a benchmark-size $1.5 billion or so new deal this quarter, so it can wait a few more weeks. But at some point it is going to have to pull the trigger and tap the market," commented the analyst.

It may be the bookrunners who are holding back the primary market, said Alvarez.

"I would think underwriters are waiting for the market to get a little bit more footing before launching this stuff. I think it's more of a function of that," he noted.

Issuers are looking for stability, he added.

"Turkey, Pakistan and Indonesia are all lined up to come to market and are only waiting to see whether spreads will return to their recent lows," added the analyst.

"I think if spreads remain at current levels or higher, a lot of these issuers will get nervous about waiting too long and go ahead and get their deals done."

Furthermore, many of the deals brewing in the pipeline appear to be Regulation S, a frustration for a buyside source.

"I'm not sure if it is something related to fees in the 144A transactions, but they are missing on an important investor base," said the source.

Poland's upsized €3 billion bonds

However there was one definite piece of information about new supply Tuesday.

In its first issuance since joining the European Union, the Republic of Poland priced an upsized €3 billion of notes due 2020 (A2/BBB+/BBB+) at 99.375 to yield 4.26% or a spread of mid-swaps plus 27 basis points. Bookrunners were BNP Paribas, Citigroup Global Markets and Dresdner Kleinwort Wasserstein.

"The deal went well," said a market source.

The issuance, hugely increased from €1.5 billion, priced at the tight end of revised price guidance of mid-swaps plus 27 to 28 basis points.

The deal was "too tight," said the buyside source, who chose not to play in the offering.

Another source said the deal performed quite well in the secondary, seeing it trading at 103.296 bid.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.