Morning Commentary: Asia softens amid cautious tone; new Peru bonds rise; Burgan Bank bonds drop

By Christine Van Dusen

Atlanta, Aug. 19 – Asian bonds were softer at the start of Wednesday’s session and five-year credit default swaps spreads were well-bid as concerns about China kept equity markets volatile.

“Cautious tone in Asian credits as the Shanghai composite remained volatile, trading down 5% and then recovering to close up 1% with speculation on further [reserve requirement ratio] cuts [for banks],” a London-based trader said. “Investment-grade cash managed to hold in broadly unchanged while credit default swaps underperformed, moving 3 bps to 10 bps wider.”

Bonds from Korea moved a couple of bps wider, he said.

“India closed firm, with Icici Ltd.’s 3 1/8% 2020 trading down at 161 bps,” he said. “Thailand cash was unchanged.”

Looking to Turkey, sovereign bonds were weaker after the central bank decided to keep rates unchanged, a trader said.

“We continue to see interest in five-year Turkey banks and corporates at the tights to the sovereign,” he said. “[Akbank TAS]'s 2025 felt heavy, as it’s probably the one bond the Street is long of against the shortened bank paper they are short of.”

The new issue of notes from Peru – $1.25 billion 4 1/8% notes due 2027 that priced Tuesday at 99.766 to yield 4.15%, or Treasuries plus 195 bps – traded between 100.125 and 100.625 on Wednesday morning, a New York-based trader said.

Citigroup and JPMorgan were the bookrunners for the Securities and Exchange Commission-registered deal.

In other trading, South Africa-based Eskom Holdings SOC Ltd.’s curve is now 100 bps wider on the month, another trader said.

Ukraine bonds don't budge

From Ukraine, trading was quiet with low volumes and mostly unchanged prices, said Fyodor Bagnenko, a fixed income trader from Dragon Capital.

“Some positive industrial production data and ominous articles about a potential escalation in the East were not enough to move the market either way,” he said.

Burgan Bank in focus

Market-watchers were also paying attention to Kuwait-based Burgan Bank SAK, which on Tuesday morning received approval from the central bank to redeem its 7 7/8% notes due in 2020 with $400 million outstanding.

“The bonds subsequently dropped substantially,” a trader said.

There’s a lot of uncertainty surrounding the possibility of following through with the redemption, he said.

“The bank has actually so far only received the approval to redeem the bonds but has made no further statement to a redemption,” he said. “We assume that Burgan Bank will go forward and redeem the bonds.”

Shareholders could benefit from the bonds’ redemption, he said, given the high coupon.

“We think that Burgan Bank is currently evaluating whether to call the bonds,” he said. “Given the 30-day notice period, it still has time until end-August if it wanted to do so. It would however not be unheard of if the bank will pay more or choose to buy back the bonds in order to appease investors.”

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