Emerging market debt lags Treasuries rally; Israel launches $1 billion notes

By Reshmi Basu and Paul A. Harris

New York, Nov. 1 - Emerging market debt posted a solid return Wednesday but still lagged a rally in U.S. Treasuries as U.S. economic data was taken to hint that the Federal Reserve may cut the fed funds rate.

In the primary market, the State of Israel launched an upsized offering of $1 billion in 10-year global notes (A2/A-/) at Treasuries plus 98 basis points.

The deal, increased from $750 million, will come inside of price guidance of 100 to 105 basis points over Treasuries.

Deutsche Bank Securities and Morgan Stanley are joint bookrunners for the issue of Securities and Exchange Commission-registered notes.

Over to South Asia, Pakistan Mobile Communications Ltd. set price guidance for an offering of $250 million in five-year senior unsecured notes at 8¾% to 9%.

ABN Amro and Deutsche Bank have the books for the Rule 144A/Regulation S offering.

The notes will come with a make-whole call and an equity clawback.

Moving to Russia, JSCB Sberbank, via SB Capital SA, set price guidance for a dollar-denominated issue of senior loan participation notes (A2//BBB) at mid-swaps plus 80 to 85 basis points.

The benchmark-sized fixed-rate bullet notes will carry a tenor of five years. Pricing is expected to take place on Friday.

Barclays Capital, Deutsche Bank and Merrill Lynch are joint bookrunners for the Regulation S transaction.

Pipeline builds

Adding to the pipeline, Bulgaria's JetFinance International AD plans to sell a euro-denominated offering of three-year senior unsecured notes (B2/B)

Citigroup is running the Regulation S deal, which will come off the issuer's euro medium-term note program

The roadshow is scheduled to end in London on Thursday.

And Chinese retailer Parkson Retail Group Ltd. plans to start a roadshow this Thursday for a debut offering of $200 million in five-year senior bonds (Ba1),

The roadshow will run until Monday, making stops in Singapore, Hong Kong, and London.

JP Morgan is the bookrunner for the Regulation S transaction.

EM tracks Treasuries higher

Emerging market debt switched gears as it took its cue from U.S. Treasuries, despite declining oil prices and softer equities.

U.S. government bonds rallied after two reports showed weak manufacturing and housing data, according to market sources.

On Wednesday, the Institute for Supply Management released a report that showed manufacturing growth in October was at its slowest pace in more than three years.

In a separate report, pending home sales for September dipped 1.1%, and were down 13.6% from a year earlier, which raised fears that the economy is heading for more of a drastic downturn than originally believed.

On the soft economic news, the yield on the 10-year Treasury note fell to 4.56% from 4.61% late Tuesday. And that provided enough of an incentive for emerging market investors to add to their positions.

"EM tracked Treasuries higher," said a trader.

"People are looking for the positives, sort of burying any bad news," he added.

As in the previous session, emerging market debt trailed the Treasuries rally while smaller credits such as the Dominican Republic emerged as the session's best performers.

At session's end, the JP Morgan EMBI Global index was up 0.30% while spreads had widened by two basis points versus Treasuries.

Brazil '40 breaks 131½

In trading, the bellwether Brazilian bond due 2040 finally broke the 131½ ceiling. The 2040 bond gained 0.30 to 131.95 bid, 132 offered.

Argentina was also higher as the country's discount bonds saw demand from foreign accounts, according to a market source. Conversely, local investors appear to be on the sidelines.

During trading, the Argentinean discount bond due 2033 added 0.60 to 101.30 bid, 101.60 offered.

Mexico was also a winner Wednesday, fueled by the Treasury rally. In trading, the Mexico bond due 2026 was up by 1.30 to 160.90 bid, 162 offered.

Elsewhere, Colombia continued to rally along its curve, a "signal of the market's search for yield," remarked an analyst.

On Tuesday, the country reopened its global notes due 2037 (Ba2/BB/BB) to add $468.4 million.

The retap priced at 102 7/8 to yield 7.142%. In the secondary, 2037 global notes climbed higher by 0.40 at 103.80 bid, 104 offered.

Ecuador dips

Moving to Ecuador, the country bucked the market's overall positive trend as it succumbed to a bit of profit-taking Wednesday ahead of elections polls, according to the trader. The nation has recently rallied as market friendly candidate Alvaro Noboa appears to have widened the gap between his opponent leftist Rafael Correa.

A poll is expected to come out in the next couple of days. But one source noted that over the last two weeks Correa has softened his hard-line rhetoric and has even distanced himself from Venezuelan president Hugo Chavez.

Correa has made a shift to the center, which means that even if he closes in on Noboa in the polls, the market may not be as spooked, observed the source.

In trading, the Ecuadorian bond due 2012 gave up 0.35 to 103 bid, 103.50 offered while the bond due 2030 eased 0.50 to 99.90 bid, 100 offered.

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