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EM bonds under renewed pressure, MENA spreads widen on oil price collapse, Russian Eurobond market turns illiquid

CEEMEA bonds were under pressure again, with a plunging oil price prompting a mid-week sell off before prices settled down as US market participants celebrated Thanksgiving. In the Middle East, spreads widened on the oil market collapse, and liquidity worsened in the CIS/Russian Eurobond market, according to an UAE-based asset manager, a Moscow-based analyst and a London-based trader.

Earlier today, the JPM EMBI index hit 425bps, the wide of the year, but even this has failed to attract many buyers.

“The market is quite bad,” a London-based analyst said, echoing the thoughts of the UAE-based asset manager.

“There was a lot of sell off this week ahead of Thanksgiving and on top of falling oil prices. The market was quite thin. Oil continues to fall 3-4% every day,” the analyst added.

Indeed, Brent Crude was trading at USD 59.45, down 5% today (23 November), dipping below the USD 60 a barrel mark it had been hovering at earlier in the week. Oil had peaked above USD 80 less than two months ago.

MENA bonds proved less resilient than they did earlier in autumn, as oil prices tanked. Middle Eastern spreads are noticeably widener on the month. Weaker credits such as Oman and Lebanon bond were at the sharp end of the decline, but higher grade Saudi Arabia and Qatar spreads also underperformed, as did MENA high-yield and property-related corporates. 

Although the Middle East region was hit the most this week, the CIS region was not entirely spared and showed signs of strain, once again mostly caused by the oil price drop. While there were no big moves in Russia, Russian sovereign spreads widened 4bps over the week.

Sanctions remained a risk but sentiment was largely favourable for Russia given that sanctions are likely to be delayed to next year as Congress, according to a second Moscow-based analyst.

The Russian Eurobond market struggled to uphold its liquidity even though conditions have deteriorated for a while already.

"The Russian Eurobond market has declined in size by USD 20bn year to date, and its current volume is around USD 143bn, including sovereign and corporate bonds," according to the first Russia-based analyst.

“Liquidity is getting worse in the Russian Eurobond market, which contributes to the lack of movement, and this is exacerbated by the fact that no new money issues are coming in,” the analyst said, adding that local banks which hold Russian Eurobonds also did not help to maintain the market's liquidity, which contributed to lower trading volumes.

Farther afield in the CIS space other EM sovereign spreads widened more than Russia.

“Ukrainian sovereign spreads widened 25bps-40bps across the curve over the week, while in Kazakhstan sovereign spreads widened 15bps-18bps. In Azerbaijan sovereign Eurobond yields increased by 7bps-15bps and Belarusian sovereign Eurobonds added 25bps-30bps in terms of yield,” the first Russia-based analyst said.

Meanwhile in Africa, Ghana announced an expansionary budget while it intends to exit IMF support. The sovereign’s extended credit facility from the IMF expires in April 2019, but the government has said it will exit at the end of this year.  

Nicole Tovstiga Reporter Debtwire

Nicole Tovstiga joined Acuris in 2017 as a reporter, focusing on the private equity market in the Nordic and CEE regions. She previously worked for various publications covering energy, commodities and wealth management.

Nicole graduated from SOAS with an MA in Social Anthropology in 2016. She also has an MSc in Business Analysis from Reading University and a BA in English Literature from Royal Holloway, University of London.

Nicole Tovstiga Reporter Debtwire

Nicole Tovstiga joined Acuris in 2017 as a reporter, focusing on the private equity market in the Nordic and CEE regions. She previously worked for various publications covering energy, commodities and wealth management.

Nicole graduated from SOAS with an MA in Social Anthropology in 2016. She also has an MSc in Business Analysis from Reading University and a BA in English Literature from Royal Holloway, University of London.

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