Emerging market debt up on equities; Brazil, Ecuador higher

By Reshmi Basu

New York, Sept. 26 - Emerging market debt saw firmer bids Tuesday as U.S. equities extended their rally on the back of encouraging economic data, which somewhat helped quell fears raised by recent reports that the U.S. economic slowdown would be greater than originally anticipated.

The Conference Board reported its index of consumer sentiment increased to 104.5 in September, up from a reading of 100.2 last month. That helped reassure investors that consumer spending will somewhat stave off a strong economic slowdown.

Also adding relief, the Richmond Federal Reserve said manufacturing in the central Atlantic region expanded at a faster pace this month.

As a result, the Dow Jones Industrial Average index jumped 93.58 to 11,669.39. That bullish sentiment triggered a rally in emerging markets as worries on the local political front took a backseat.

"Prices were up pretty much across the board," noted a trader.

At the end of the session, the JP Morgan EMBI Global index was up by 0.25%.

Brazil up

Brazil saw higher prices as tension eased amid a political scandal that has rocked president Luiz Inacio Lula da Silva and his Workers Party.

Last Wednesday, it emerged that the country's Supreme Electoral Court had opened a probe into whether Lula played a role in an alleged scheme to purchase documents meant to discredit the opposition party.

But a poll released Tuesday showed that Lula would gain 59% of the vote in the upcoming poll. He needs 50% to avoid a second round run-off election.

In trading, the Brazilian bond due 2040 added 0.35 to 129.70 bid, 129.90 offered.

And even Ecuador saw better bids, ending a bearish run on political jitters.

Weekend polls showed that Rafael Correa, friend of Venezuelan president Hugo Chavez, pulled ahead of center-left candidate Leon Roldos by eight points, according to a Cedatos Gallup survey.

That created pressure for the Ecuadorian bond due 2030 on Monday, which gave up 0.25 to 92.25 bid, 93.25 offered.

But on Tuesday, the 2030 bond rebounded, adding 0.20 to 92.90 bid, 93.43 offered.

Its portion of the EMBI Global index tightened by seven basis points.

Overall, the market will most likely continue to see momentum at least through the end of this week, when the fiscal quarter ends Friday, according to a buyside source.

The source is not nervous over local political noises from Brazil. Instead, the risk comes from the external side as emerging markets take their cue from U.S. equities.

Ecuador's worries will remain a concern for the market, but its performance will also depend on oil prices.

Korea Western sells $150 million bonds

In the primary market, Korea Western Power Co., Ltd. (Kowepo) sold $150 million of 10-year fixed-rate notes (A1/A) at 98.964 to yield Treasuries plus 107.4 basis points or 55 basis points over mid-swaps.

The issue priced at the tight end of price guidance, which was set at mid-swaps plus 55 to 60 basis points.

Barclays Capital and Deutsche Bank were joint bookrunners for the Regulation S sale.

The buyside source said she has not added any recent new issues to her holdings, instead choosing to play in local markets because they appear to offer better value.

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