EM debt bounces back on hopes that E.U. can contain financial crisis; Kookmin on road

By Christine Van Dusen

Atlanta, Sept. 27 - Emerging markets debt had a slow start on Tuesday but gained steam on optimism about the European Union's ability to manage the economic crisis, given the news that Greece approved a new property tax law that will bring the troubled sovereign one step closer to receiving a bailout and preventing a default.

The JPMorgan Emerging Markets Bond Index Global spread was seen at Treasuries plus 442 basis points, about 25 bps tighter.

"It's not necessarily the plan," a trader said, "but the perception that European Union leaders now 'get it.'"

Flows were mixed, another trader said.

"But generally there were sellers on Bahrain names and buyers on Mubadala while there was two-way [investor interest] on International Petroleum Investment Co. and ongoing retail on Dubai, Dubai Water and Electricity Authority and Qtel International," he said.

Overall, the market remains thin and disjointed, he said.

"It's still all about positions and flows, to my mind," he said. "A lot of people are still long on the same names and still short on the same names. It's still pretty thin, all told. Of course a very disjointed market with differing opinions and sporadic liquidity is actually quite an opportunity. It's all about picking one's names, credits and tenors. And of course, as with everything, it's timing."

The primary market remained mostly quiet, with just South Korea's Kookmin Bank making news as it continued on a roadshow.

Spreads tighten

Tuesday's session began with a "mini-bounce" in the morning, a trader said, with the Markit iTraxx SovX index spread 30 basis points tighter at 335 bps. Russia's 2030s tightened as much as 35 bps.

Ukraine also saw some tightening, and some liquidity returned on the corporate side, another trader said. Particular interest was paid to Ukreximbank's 2015s, which saw selling.

"But everything else lags as people try to take advantage of the fact that off-the-run bonds might actually have some liquidity," a trader said. "I can only assume that until the fear of further redemptions has passed, that EM will remain nervous."

South Africa firms

Another London-based market source noted that the markets were subdued early in the day, but with prices marked up after being marked down during the last few sessions.

"Witness the recent Serbia deal, a $1 billion 10-year that came last week at 98.26," he said. "It's now trading 92 bid, 92.75 offered, and that deal was oversubscribed."

In other trading on Tuesday, most bonds from South Africa were a touch firmer, with some selling of the sovereign's 2020s.

"We started to see some shoots of liquidity return on Africa," a trader said. "But it's thin and there have been some decent week-on-week moves."

Morocco's 2017s continued to hold well, trading Tuesday at 101.87 bid, 102.37 offered.

Kazakhstan quiet, Qatar wider

Kazakhstan was largely quiet, with only KazMunaiGaz trading at the start of the session, a trader said. By day's end BTA Bank's 2025s were below 25.

Meanwhile, Qatar's prices were 15 bps to 25 bps wider on the week, with the 2019s and 2020s wider by 35 bps to 40 bps on the month. "We're not seeing many buyers on any of the usual Qatari suspects," a trader said.

Names from Dubai started the day on pause but by the end of the session were 15 bps to 30 bps tighter with a solid bid.

"Good inquiry and activity on Emirates' 2016s throughout the day, closing just off the high prints," a trader said. "Sukuks, at least the better-rated ones, felt well sponsored today, especially Sharjah Islamic Bank, Abu Dhabi Islamic Bank and First Gulf Bank."

Sharjah Islamic Bank has been one of the better performers so far this week, he said, in particular the 2016s, which were tighter by 6 bps.

IPIC sees selling, buying

Some small selling was seen for IPIC's 2026s, which were trading at 102.75 bid, 103.50 offered. Small buying was reported for the company's 2020s, seen trading at 102.50 bid, 103.25 offered.

"As week-on-week moves show, IPIC is behaving a little strange, with paper coming out on the 2015s and 2016s," a trader said. "Those two bonds have traditionally traded very well, but the 2020s and 2021s are outperforming for the time being."

Paper from Kuwait-based Kipco remained heavy on Tuesday without any meaningful Street buyers, he said. Burgan Bank was a bit heavier, with some paper coming out in the high 106s.

And Lebanon held firm.

Turkey a winner

By the close of the European session, emerging markets debt continued to rebound on the back of a 5% rally in European stocks, a trader said.

The big winners of the day, he said, were Turkey - 40 bps tighter - and Gazprom and Vnesheconombank, which finished 30 bps tighter.

"Perhaps the big selling seen last week has cleaned out a lot of the international funds who needed to lighten up. And locals still flush with cash will probably try and take it higher again," a trader said.

Said another trader: "The client flow we saw today was mixed, but still biased to better selling. There was very good Street demand. But off-the-run risk remains in the doldrums."

Kookmin continues roadshow

In deal-related news, South Korea-based lender Kookmin Bank was on a roadshow with bookrunners Bank of America Merrill Lynch, Credit Suisse, HSBC, JPMorgan, RBS and UBS, a market source said.

The marketing trip began Monday and travels through Asia and Europe.

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