Emerging market debt up on positive core U.S. markets; corporates add $550 million in supply

By Reshmi Basu and Paul A. Harris

New York, Aug. 3 - Emerging market debt remained well grounded Thursday, a day ahead of the pivotal release of non-farm payroll numbers in the United States.

In the primary market, two corporations introduced $550 million of new paper.

Out of Korea, steel maker Posco sold $300 million of 10-year senior notes (A2/A-/A-) at 99.671 to yield mid-swaps plus 40 basis points via ABN Amro, HSBC and UBS Investment Bank.

The deal priced at the tight end of price guidance, which was set at mid-swaps plus 40 to 45 basis points.

Elsewhere, the Argentinean branch of Pan American Energy LLC (Ba3/BB-) sold $250 million in 51/2-year bonds at par to yield 7¾%.

The deal priced at the low end of revised price guidance, which was cut to the 7 7/8% area from 8% area on Wednesday.

Citigroup and JP Morgan were joint bookrunners for the Rule 144A/Regulation S transaction.

Pan American Energy is engaged mainly in the exploration, development and production of oil and gas.

In other news, the Federative Republic of Brazil said it would issue an additional $500 million of its 7 1/8% bond due 2037 in its debt exchange. The amount falls short of the maximum $1.5 billion the government had planned to issue in exchange for existing debt when the offer was announced on July 27.

Brazil announced Wednesday that it would issue the 2037 bonds at a spread of 205 basis points over Treasuries as part of its proposal to buy back existing bonds with maturities ranging from 2020 to 2030.

The 2037 global bond's re-offer price is $996.84 per $1,000 principal amount.

For the most part, the bonds involved in the exchange were higher during trading Thursday. In the secondary, the Brazilian 2037 bond was up 0.10 to 128.60 bid, 128.70 offered.

Meanwhile the bond due 2020 gained 0.50 to 148.75 bid, 150 offered. The bond due 2024 lost 0.50 to 117 bid, 118 offered while the bond due 2024, series B jumped 0.90 to 116.50 bid, 117.50 offered. The bond due 2027 was up 0.65 to 130.50 bid, 132.50 offered. And the 2030 bond rose 0.60 to 158.50 bid, 157.60 offered.

EM supported

Emerging markets debt remained well supported Thursday in light trading, buoyed by a run-up in U.S. equities and firmer Treasuries.

Core financial markets in the United States posted gains for the second session on the back of benign U.S. data, which showed that service industries grew at a slower pace for the third straight month. That data helped mitigate fears that the Federal Reserve would crank borrowing rates higher.

The Dow Jones Industrial Average added 42.66 to close at 11,242.59 while the yield on the 10-year Treasury note stayed below 5% to end the session at 4.95%.

As a result, emerging market debt saw higher price action, according to market sources.

During the session, the Brazilian bond due 2040 was up 0.10 to 128.60 bid, 128.70 offered. The Argentinean discount bond due 2033 added 0.50 to 94.50 bid, 95.20 offered. The Russian bond due 2030 gained 0.25 to 109 bid, 109.50 offered. And the Turkish bond due 2030 was up 0.75 to 145.75 bid, 146.25 offered.

"Spreads are a few basis points tighter," noted a trader.

"Treasuries rallied a little bit. Bonds traded pretty well," he said, adding that Argentinean local markets were a little softer on the day.

In Mexico, local markets posted gains, despite ongoing protests by supporters of left-leaning Andrés Manuel López Obrador. The country's Electoral Tribunal is considering his request for a recount of the July 2 election.

Additionally, the trader added that the thin trading volumes were more of a function of the summer session and had less to do with Friday's upcoming job data.

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