Emerging market debt firmer on dovish Fed statement; Panama reopens 2036 bonds

By Reshmi Basu and Paul Deckelman

New York, March 22 - Emerging market debt continued to strum along Thursday, basking in the afterglow of Wednesday's release of a more dovish statement by the Federal Reserve.

In the primary market, the Republic of Panama reopened its 6.70% amortizing global bonds due 2036 (Ba1/BB/BB+) to add $450 million.

The retap priced at 103 3/8 to yield 6.437%, which came in line with initial guidance.

Panama had initially offered to sell an additional $300 million of the bonds, but upped the size of the deal due to substantial demand.

Orders for the deal ran around $1 billion, according to a market source.

Morgan Stanley was the bookrunner for the transaction.

In January 2006, the country issued $1.363 billion of the 2036 bonds in its Dutch auction exchange offer.

Meanwhile in secondary trading, the Central American country witnessed its bonds slip on technicals, particularly in the long end of the curve.

During the session, the country's 2036 bonds were spotted at 103.40 bid, 103.50 offered, down 1½ points from the previous close.

Elsewhere, the new issue from Dominican Republic's Cerveceria Nacional traded up in the secondary. The brewing company priced a downsized offering of $255 million of seven-year senior unsecured notes (B1/B) at par to yield 8% via Citigroup.

In trading, the new issue was spotted at 102.

In other news, local news outlets are reported that Venezuelan state oil company PDVSA will issue as much as $5 billion in bonds to local investors.

PDVSA president Rafael Ramirez is quoted as saying that maturities will run from 10, 20, to 30 years.

EM tighter on dovish Fed

Back to the secondary market, spreads for emerging market debt tightened on follow through from Wednesday's rally, which was triggered by a change in Fed language in the statement accompanying its decision to keep interest rates steady, which raised bets that a rate cut was still in the cards.

In Asian trading Thursday, regional credits opened with a firmer tone as they played catch up to the sharp rally witnessed in the U.S. markets the day before.

But that rally in Asia was capped by profit-takers, noted a market source.

On the investment-grade front, dealers and real money accounts were active.

Sovereigns underperformed similarly rated corporates as Indonesia and the Philippines were ¼ to ½ point higher. Corporates moved up by ¼ to ¾ point, triggered by a rally in equities.

Meanwhile sources noted that back in New York, the trading session was uneventful, as spreads tightened by 7 basis points on the JP Morgan EMBI+ index.

But despite the gains, in the absence of any price catalysts and a mixed U.S. stock market, trading in the asset class was uninspired.

Among benchmark names, the bellwether Brazilian bond due 2040 gave up 0.25 to 134.75 bid, 134.85 offered. The Mexico bond due 2026 gave up 0.82 to 163 bid, 163.80 offered. The Turkish bond due 2030 added 0.50 to 154.375 bid, 154.75 offered.

"It was a quiet day," remarked a debt strategist.

Moreover, the market is not operating at full-force, given all the interruptions during this week.

"I think there has been sort of a vacation here because of the IADB meeting, waiting for the Fed," noted the strategist, referring to this week's annual meeting of the Inter-American Development Bank in Guatemala.

Furthermore, those disruptions have kept the secondary market in a holding pattern and sapped some of the energy from the primary market.

But the source said he does expect to see a pick up in new deals, possibly as early as next week.

"I think we're see more issuance soon because it seems like a sweet spot for issuance here," he said.

"That's because everything that can happen is worse - either the U.S. economy slows down so spreads widen or the U.S. economy speeds up so bond rates rise," he noted.

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