Russia is raising $6 billion of bonds in dollars and its first notes in euros, seizing on improved investor sentiment before the Federal Reserve meeting that may mark the start of a tapering in stimulus measures.
The sale includes $3 billion of 10-year bonds and a seven-year note in euros, according to a person with direct knowledge of the offerings, who asked not to be identified because the information isn’t public. It canceled a 12-year issue in euros, the person said.
Emerging-market bonds, which plunged after Fed Chairman Ben S. Bernanke said May 22 the U.S. could start scaling back measures if the employment outlook signaled “sustainable improvement,” gained Sept. 6 as data showed America added fewer jobs than forecast. South Africa will sell $1.5 billion of 12-year bonds, a person with knowledge of the deal said today.
“There’s a window of about a week before the Fed meets and Congress returns, so the sooner the better,” Richard Segal, the head of international credit strategy at Jefferies Group Inc. in London, said in e-mailed comments.
The average yield on emerging-market government bonds fell five basis points to 5.52 percent on Sept. 6, after rising 155 basis points since May 22, according to Bloomberg’s USD Emerging Market Sovereign Bond Index. Investors pulled $27 billion from developing-nation bonds from May 1 to Sept. 4, EPFR Global, a Cambridge, Massachusetts-based firm that tracks fund flows, said in an e-mail Sept. 6.
The rate on Russia’s $3 billion of notes due April 2042 climbed four basis points to 5.794 percent at 7:05 p.m. in Moscow, after reaching a high of 5.796 percent on Sept. 5. The yield was 5.798 percent at last year’s sale.
The Federal Open Market Committee is scheduled to meet on Sept. 17-18. It will cut Treasury purchases to $35 billion from $45 billion, while maintaining mortgage-bond buying at $40 billion, according to the median of 34 responses in a Bloomberg survey released on Sept. 6.
“Russia is in a rush, trying to exploit the week before the FOMC meeting,” Aurelija Augulyte, an emerging-markets strategist at Nordea Bank AB in Copenhagen, said by e-mail. “Emerging markets have been hit hard since May, but now we see some signs of panic receding, so it’s a good time for issuers and Russia is clearly one of the strongest sovereigns in the EM space.”
Russia sold $7 billion of bonds last year with maturities from five to 30 years. The government is selling the 30-year and 10-year dollar debt at a yield 220 basis points above U.S. Treasury rates, and an issue due in January 2019 at a spread of 195 basis points, according to the person. It’s selling seven-year notes in euros at 185 basis points over benchmark mid-swap rates, the person said.
Finance Minister Anton Siluanov said Aug. 22 the country was waiting for the “best window” to sell as much as $7 billion of debt. The offering comes after a smaller-than-expected increase in U.S. nonfarm payrolls last week eased concern over the potential size of Fed tapering.
“It’s probably a decent time to go ahead” with the sale after “soft” U.S. jobs data, said John L. Peta, who helps manage $3 billion of emerging-market debt at Threadneedle Asset Management Ltd. in London, who is looking at the issues in both currencies.
South Africa is offering dollar-denominated bonds at a spread of 315 basis points to 320 over 10-year U.S. Treasuries, said the person familiar with the offering, who asked not to be identified because the terms aren’t set. Kazakhstan is planning to hold a roadshow for five-year bonds later this month, Kuat Akizhanov, director of state borrowing department, said in a phone interview today from the capital, Astana. It’s looking to raise as much as $1 billion, he said.
Russia appointed Royal Bank of Scotland Group Plc, Barclays Plc, Deutsche Bank AG, VTB Capital, Renaissance Capital and OAO Gazprombank as managers of the placement in June.