Another surge in US Treasury yields led some CEEMEA borrowers to pause issuance plans on Wednesday, after volatility forced Emirates NBD into paying a higher concession. But it may not be long before borrowers return to primary.
Oman Telecommunications and Damac Properties were hoping to print bonds on Wednesday. Omantel plans a seven year dollar sukuk and has been holding calls since Monday, while Damac has been preparing a three and a half year dollar sukuk.
But neither began execution on Wednesday, and emerging market syndicate and debt capital markets bankers on the trades blamed market volatility.
“What is really hitting primary is the rates,” said the EM syndicate head. “Treasuries have sold off dramatically. The market has been soft since the Fed. When there is such a volatile backdrop in supposedly the safest instrument out there, US Treasuries, then it is not easy to price risk assets.”
EM debt has endured a difficult period since the US Federal Reserve Open Market Committee meeting ended on September 20, when the central bank confirmed the market should expect interest rates to remain higher for longer.
That path is what is pushing CEEMEA issuers to the primary market, because it is not likely there will be any rate cuts any time soon. The volatility in Treasuries is what is making printing those bonds difficult though.
The 10 year Treasury yielded 4.8% on Wednesday at midday UK time, and over Tuesday it moved higher by nearly 10bp. It has risen by 30bp since the start of the week and since September 20, the yield has climbed by 40bp.
US job openings data for August, released by the US Bureau of Labor Statistics on Tuesday, was higher than expected. This suggested the US labour market is tight and fuelled expectations of a further interest rate rise this year from the Fed.
But while no CEEMEA issuers are attempting new bonds on Wednesday, it may not be long before they do.
“It’s hard for issuers and syndicates to navigate markets but I’m confident supply will return very soon,” said the syndicate head. “Issuers are taking a pause.”
Other CEEMEA issuers preparing new bonds or sukuk are Uzbekistan, Bulgarian lender First Investment Bank and Hungary’s MBH Bank.
Thursday this week was always the earliest Uzbekistan was going to print while MBH is for next week, said an EM syndicate officials on those trades. For FIB, there is “nothing near term” planned, said another.
ENBD pays up
The only new bond so far this week from CEEMEA was ENBD’s green debut on Tuesday. It sold a $750m 5.875% October 2028 note. Reoffer was 99.88 to yield 5.903%.
ENBD, rated A2/A+, priced its deal at a spread of 120bp over Treasuries, tightening by 20bp from initial price talk. ENBD has started wide because of the volatility, said a London-based EM syndicate banker on the trade during execution on Tuesday.
Bookrunners were Abu Dhabi Commercial Bank, BNP Paribas, ENBD, HSBC, ING and Standard Chartered.
Comparables included a green bond from ADCB on September 5, $650m 5.5% January 2029s. That was quoted at 100bp over Treasuries during ENBD’s execution, and one UAE-based DCM official had said given ENBD is a larger bank it would have hoped to price its bond inside ADCB.
Fair value was 95bp, said leads, meaning a concession of 25bp for ENBDand compared with 5bp-10bp for ADCB.
But an EM syndicate banker away from ENBD’s deal said the primary market is much more difficult than it was just a few weeks ago. And at $1.9bn, ENBD still drew a good book.
“It was a fairly reasonable outcome for ENBD,” he said. “This was clearly a confirmation that issuers have to pay up and offer a more generous concession than even two weeks ago.”
He noted that at 120bp over Treasuries, ENBD was still pricing at a tight spread compared with deals in the past.
“New issue premia can be a bit of an abstract concept,” he added. “It was still a pretty decent outcome.”
ENBD is a regular issuer and leads also looked at its own curve to develop pricing for the green debut. ENBD has a $750m 1.64% January 2026 note, which leads put at about 60bp over Treasuries on Tuesday morning.
But what the trade showed, said the syndicate banker away from the deal, is that secondary levels can be misleading.
“What is interesting about this deal is it shows that secondary quotations can be stale and not reliable for pricing new issues,” he said. “Leads rightly looked at a broader set of comparables, including that ADCB deal, and that is how investors look at it too.”