Spreads tighten for EM overall, widen for Lat-Am sovereigns; bond funds see outflows again

By Christine Van Dusen

Atlanta, July 19 - Emerging markets assets on Friday saw tighter spreads amid limited volumes as investors remained in summertime mode and bonds from names like Corporacion Nacional del Cobre de Chile (Codelco) and Brazil's Odebrecht Finance Ltd. narrowed.

The Markit iTraxx SovX CEEME ex-EU index spread on Friday tightened by 2 basis points to 213 bps over Treasuries after starting the week at 233 bps. The Markit iTraxx Crossover index spread narrowed by 6 bps on Friday, to 406 bps over Treasuries, after Monday's level of 431.5 bps.

"We are opening slightly firmer," an analyst said at the end of the week. "A quiet Friday opening in Central and emerging Europe, the Middle East and Asia."

Bonds from Latin American corporate issuers weren't very active at the start of Friday's session, a New York-based trader said.

"Buyer comfort level continues to get better, although selectivity remains in the forefront," he said. "Many issues continue to trade infrequently or not at all."

Chile-based Codelco's 2021 and 2022 notes continued to tighten, seen at 145 at the end of the week after previously trading in the 200s.

And Brazil's Odebrecht Finance was bouncing back by Friday, he said, with the 2042s trading near 1003/4.

"A healthy 41/2-point move in 1½ weeks," he said.

But the bounce-back didn't apply to emerging markets bond funds. They saw outflows yet again, this week at $1.32 billion, down just slightly from the previous week's $1.33 billion, according to data-tracker EPFR Global.

This week about $633 million flowed out of hard currency funds.

Lat-Am sovereigns widen

On the sovereign side in Latin America, spreads widened slightly for many names from Latin America, another New York-based trader said.

"Argentina, Venezuela and PDVSA give back some of yesterday's outperformance as prices drop ¾ point to 1¼ points," she said.

Venezuela's 2027s were seen Friday at 851/4.

Activity was light for most Latin American sovereign bonds.

"Seems the market looks to consolidate after a good run tighter the prior two weeks," she said.

EM vulnerability remains

Investors should remain "mindful" of potential vulnerability among emerging markets assets, according to a report from Barclays.

"Large EM asset price swings since late May have improved market positioning and returned value to different asset classes," the report said. "However, large pockets of vulnerability to future disruption in portfolio inflows remain, of which investors need to be mindful."

Ghana sets roadshow

Ghana has set a roadshow for July 22 to July 24 for a dollar-denominated issue of notes, a market source said.

Barclays and Citigroup are the bookrunners for the Rule 144A and Regulation S deal.

The roadshow will begin on July 22 in London and Los Angeles, then travel to Germany and Boston before concluding on July 24 in New York.

Multipolar draws some orders

The final book for Indonesia-based computer importer and retailer PT Multipolar's $200 million 9¾% notes due 2018 was $375 million from 56 accounts, a market source said.

The notes priced at par to yield 9¾%, matching talk.

About 86% of the orders came from Asia, 12% from Europe and 2% from offshore United States.

Fund managers picked up 72%, banks and others 18% and private banks 10%.

Citigroup, Deutsche Bank and Nomura Securities were the bookrunners for the Regulation S notes.

Russian deal oversubscribed

Drawing more orders was OJSC Russian Agricultural Bank's $800 million 5.1% notes due 2018 that priced at par to yield Treasuries plus 376 bps, a market source said.

The final book was more than $4 billion, with 35% of the orders came from the United States, 29% from Europe, 18% from the United Kingdom, 11% from Switzerland and 6% from others.

Fund and asset managers accounted for 59%, banks and private banks 21%, others 12% and hedge funds 8%.

The notes were talked at a yield in the 5.4% area.

JPMorgan, RBS and VTB are the bookrunners for the Rule 144A and Regulation S deal.

Asset managers like Gazprom

Also oversubscribed was Russia-based OJSC Gazprom's €900 million issue of 3.7% notes due 2018, which came to the market at par to yield 3.7% after talk in the 3¾% area.

The deal attracted $4.9 billion in orders, with 67% from Europe, 23% from the United Kingdom, 6% from others and 4% from Asia.

Asset managers picked up 53%, banks and private banks 26%, pension funds and insurers 10%, others 7% and hedge funds 4%.

BofA Merrill Lynch, Deutsche Bank, Gazprombank and JPMorgan were the bookrunners for the Regulation S deal.

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