Emerging markets sell off again; Asian corporates add to pipeline

By Reshmi Basu and Paul A. Harris

New York, March 14 - Emerging market debt had another tough outing Monday as the 10-year U.S. Treasuries hovered above 4.50%.

Treasuries have been on the defensive in recent sessions as the market's perception of higher inflationary pressure has intensified. In trading Monday, the yield on the 10-year note reached as high as 4.58%, before closing at 4.51%.

"No one knows where [U.S.] rates are going," said a trader. "Everyone is very short, but there's still a lot of cash pouring in."

Those higher Treasury yields pushed down emerging markets. The Mexico bond due 2008 slipped 0.70 to 119.10 bid. The Russia bond due 2030 was down 0.505 to 103.37 bid. Turkey's bond due 2030 slid 2.688 to 138.437 bid.

Brazil paper also took a hit on the back of the Treasuries movement. The Brazil bond due 2024 was spotted at 97¾ bid, 98¾ offered, down from 99.95 bid 101.45 offered on Thursday. The bond due 2027 was quoted at 108.563 bid, 109¼ offered, down from 111 bid 111 3/8 offered on Thursday. The bond due 2040 was spotted at 113.688 bid, 113.938 offered, down from 115.813 bid, 116 offered on Thursday.

Higher interest rates in Brazil are also a concern for investors. On Monday, Brazil's Copom began its two-day meeting, where the market is expecting a 25 to 50 basis points hike from it current level of 18¾%. This would the seventh straight increase for Brazil.

"The expectation was that they would stop after this," said a trader. "The bank is aiming for a 5.1% inflation target this year. They have a lot of critics who said that the hikes have slowed down the economic engine."

"People will be watching how the local market digests the hikes," he added.

Asian markets softer

At the close of the Asian market Monday, Asian paper was softer. A market source said that the Philippines was one to two points weaker. Other high-yield credits were a half to one point weaker.

Corporate bonds such as Noble and Titan were also down in secondary trading. The new Noble Group Ltd. 6 5/8% bond due 2015 was trading at 98½ bid, down 1½ points from Friday. It priced at 99.059 on Thursday. The Titan Petrochemicals Group Ltd. 8½% bond due 2011 was down ½ point at 99½ bid. It priced at par on Thursday.

Paper from Hutchison Whampoa underperformed, widening three to five basis points, according to the source. The spread on the Hutchison bond due 2015 widened four basis points to 103 basis points from Friday's close of 99 basis points more than Treasuries.

More Asian issuers

But despite the softness, more Asian corporates added to the pipeline.

South Korea's telecommunication's provider Dacom Corp. will start a roadshow this week in Asia for a $300 million offering of five-year notes (expected ratings Ba3/BB-). .

Credit Suisse First Boston has the books for the Rule 144A/Regulation S offering.

Also out of Korea, National Agricultural Cooperative Federation plans to issue $400 million of bonds this week.

Barclays Capital, BNP Paribas and JP Morgan are managing the sale.

Thai Military Bank will also be on the road this week for its offering of $250 million of 10-year bonds (Ba1//BB-).

DBS Bank and JP Morgan are managing the sale.

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