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CEEMEA Sovereign Credit Navigator – 31 July 2017 Summary

Core Content Overview

This document provides a credit market update for CEEMEA (Central and Eastern Europe, Middle East, and Africa) sovereign bonds, with a focus on relative value analysis and market movements. It highlights the performance of sovereign bonds, upcoming rating reviews, and market expectations for the coming week.

Key Market Observations

Week Ahead Outlook

• CEEMEA Sovereigns: The primary market has been quiet in July with no new deals, but August is expected to have lower liquidity, with USD 1bn of coupons and amortisations. Technical factors are seen as supportive.
• Focus Shift: The report anticipates a return of focus to the GCC due to increased tensions, particularly with the Saudi-led coalition reinstating demands against Qatar.
• Volatility Expectations: Volatility is likely to increase in the GCC as Qatari sovereign bonds are near pre-sanction levels, and recent downgrades of Bahrain and Oman by Moody's are expected to impact sentiment.

Last Week's Performance

• Average Z-Spread Move: CEEMEA sovereigns ended the week 5bp tighter on average, with curves slightly flattening.
• Outperformers: Higher beta nations in Sub-Saharan Africa (SSA) outperformed, with notable gains in Zambia, Angola, and Gabon.
• Underperformers: Egypt and Turkey were slightly wider, while most other names were tighter.

Rating Reviews

• Key Reviews:
  • Angola (Moody's, B1 Neg)
  • Azerbaijan (Fitch, BB+ Neg)
  • Kuwait (S&P, AA)
  • Macedonia (Fitch, BB Neg)
  • Slovakia (Fitch, A+)

Relative Value Analysis

Z-Spread Changes (1W, 1M, 3M, 1Y, YTD)

1W Outperformers

• Iraq: -43
• Zambia: -33
• Angola: -32
• Gabon: -27
• Ethiopia: -23
• Kenya: -20
• Nigeria: -13
• Ivory Coast: -10

1W Underperformers

• Egypt: 3
• Latvia: 3
• Turkey: 2
• South Africa: 0
• Abu Dhabi: -1
• Lithuania: -1
• Russia: -1
• Ukraine: -1

CDS Basis for Sovereign Bonds

• Russia, Turkey, South Africa: CDS basis is at 0, indicating no significant deviation from spot levels.

CEEMEA 5s-10s-30s Differential Analysis

€ vs $ Comparison

Relative Value Analysis for Russia, Turkey, and South Africa $ Bonds

3m Z-Spread Z-Scores

• Russia 5% '20: -18
• Russia 4.5% '22: 31
• Russia 4.875% '23: 56
• South Africa 5.5% '20: -18
• South Africa 5.875% '22: 7
• South Africa 4.665% '24: 6
• South Africa 5.875% '25: 8
• South Africa 4.875% '26: 9
• Turkey 7% '20: -57
• Turkey 5.625% '21: -58
• Turkey 5.125% '22: -45
• Turkey 6.25% '22: -35
• Turkey 3.25% '23: -26
• Turkey 5.75% '24: -19
• Turkey 7.375% '25: -14
• Turkey 4.25% '26: -2
• Turkey 4.875% '26: -5
• Turkey 6% '27: -11

Relative Value Analysis for CEE $ Bonds

Buy vs Sell Differentials

Key Information

• The report suggests that the market may see increased volatility in the GCC due to ongoing tensions and the reinstatement of demands against Qatar.
• There is a focus on the potential for CEE sovereigns to benefit from the expected lower liquidity in August.
• The strategy includes taking profits on Poland and switching to Republic of Turkey (REPHUN) bonds due to the spread differential and rating difference.
• A detailed Z-spread analysis is provided for various sovereign bonds, highlighting relative value opportunities.
• The report also includes comparisons between EUR and USD bonds for several countries, with adjustments made for USD equivalents.