Brazil 2040 hits seven-month low, but EM outperforms Treasuries; Hynix launches dollar deal

By Paul Deckelman and Aaron Hochman-Zimmerman

New York, June 12 - Against a capital markets backdrop which saw U.S. Treasuries being mugged in broad daylight, emerging markets were actually seen to stabilize in relative terms, with spreads narrowing and EM outperforming the U.S. government paper.

Nevertheless players were marking some of the big Latin American sovereigns lower, with Brazil's 11% notes maturing in 2040 coming up against a seven-month low, while Venezuela and Ecuador continued to seem as though they were continuing to do whatever they could to erode the value of their debt securities.

Meanwhile the new issue market heard from sovereigns (Ukraine and Colombia), as well as quasi-sovereigns.

There was also news from the corporate sector as Korea's Hynix Semiconductor stepped forward with a dollar-denominated debt refinancing expected to total $500 million.

Treasuries: the hemorrhaging continues

Secondary prices on most emerging market bonds slid on Tuesday as the U.S. Treasury market kept sliding.

However, in relative terms, spreads between the U.S. bonds and EM debt were seen mostly stable to actually a little narrower, as many emerging markets names outperformed.

The EMBI+ index measuring the average emerging spread versus Treasuries was seen around 157 bps, actually in 2 bps from Monday's level.

A New York-based trader in Latin American debt said that "Treasuries were down, equity was getting crushed."

He said "it's not a panic, it was orderly," but emerging bonds pretty much "got hit across the board."

Among the major downsiders he saw were Argentina's dollar-denominated discount bonds, Venezuela's benchmark 2027 dollar issue and the most widely traded emerging markets bond, the Brazilian 11% notes due 2040.

He said the 40s were probably about 10 bps wider on the day, which he said was "not that much" of a drop.

"It was pretty orderly for our stuff, because that's not where the problem is. They're just readjusting for global rates, basically."

Brazil hits low

On a dollar-price basis, he said that the Brazilian benchmarks were heading downward, with Treasuries, and even though their yield rose, the Brazilian bonds in particular and Latin debt generally was not much changed to just "a little wider" on a spread basis relative to Treasuries.

Treasury yield were also pushing upward, hitting five-year intraday highs above 5.30% on the U.S. 10-year note, before closing just below that at 5.297%, up 13 bps on the session.

The trader estimated the Brazilian '11s as having eased to 130.45 and the Venezuelan bonds at 107.25 bid, 107.75 offered.

The formerly high-flying Brazilian bonds have come down to around their lowest levels in over seven months.

CDS wider

The trader saw the credit default swap contracts also having widened out, with Brazil "a couple" of bps wider, and Venezuela "quite a few" bps wider.

CDS contracts in general were "wider across the board."

He stressed again that although his market was lower, "it was orderly."

Selling in Ecuador

The trader said "there were some sellers today" in Ecuador bonds, even beyond the general downturn. He saw the Andean country's 10% benchmark notes due 2030 around 86 bid, off a couple of points.

The country's volatile bonds have recently been widening out on continued investor concern about the country's intentions of paying its debt as well as the nasty scandal which has engulfed economy minister Ricardo Patino, under scrutiny by the congress in Quito after he was caught on a secret videotape allegedly discussing ways of manipulating the debt market with several bankers. Patino says he has done nothing wrong.

As if that weren't enough to weigh on the minds of investors in Ecuador debt, Standard & Poor's on Tuesday said that those bondholders, as well as investors in Venezuelan and Lebanese bonds may only recoup as little as 30% of their principal in the event of a default.

S&P's new debt recovery ratings for below-investment-grade sovereign issuers gave the highest probability of recovery - possibly as much as 90% - to holders of bonds issued by Colombia, Uruguay and Costa Rica.

Meanwhile the bonds of Venezuela's state-run oil company, Petroleos de Venezuela, were also seen on the downside, along with the country's sovereigns and other emerging debt.

The 5¼% notes due 2017 lost over ½ point to 77.5 bid, with the yield moving up 10 bps to 8.70%.

Mexican local bonds lower

Elsewhere in the region, Mexico's local-currency bonds were seen lower, in line with a downturn in the peso. The 7¼% notes due 2016 were down around ¼ point to about the 96.5 level, while its yield rose 4 bps to 7.76%.

Outside of Latin America, Philippines government bonds were seen to have retreated during the Asian trading session, its dollar-denominated 2032 benchmark issue down ¼ point and its 2031s also down ¼ at 95.25 and 110.375, respectively.

CDS contracts linked to those bonds were seen pretty steady at 101-104 bps.

Primary produces planned deals

In the primary market, new launches were easy to find, but no terms surfaced for deals in the international financing arena, according to sources.

Many investors were "watching the market panic," according to a market source who added that the catalyst was the global outlook on interest rates.

Ukraine sets price talk

The Government of Ukraine (B1/BB-/BB-) talked its benchmark-sized dollar-denominated 10-year eurobonds at Treasuries plus 120 basis points.

Citigroup, Credit Suisse, Deutsche Bank and UBS have the books.

Russian banks

Elsewhere Russia's Alfa Bank talked its benchmark-sized five-year dollar-dominated issue (Ba1/BB) at 260 basis points over mid-swaps.

Credit Suisse and UBS will be the bookrunners for the deal.

The Moscow-based investment bank ended its roadshow Tuesday.

Russian Standard Bank will offer an expected benchmark-sized dollar-dominated eurobonds (Ba2/BB-) through Russian Standard Finance SA.

ABN Amro and JP Morgan will be the bookrunners.

The roadshow will be held on June 14 in Hong Kong, June 15 in Singapore, June 18 in London and June 19 in Germany and Switzerland.

The market is expecting the deal to be sized at $500 million with a five-year maturity, according to an emerging markets analyst. That amount would follow the pattern set by Russian Standard's $500 million, five-year issue sold in October 2005.

Russian Standard may be "testing the waters...to see whether $500 million will fly, otherwise I'd guess they'd settle for $300 [million] or so, but with a seven-year tenor," the analyst said.

Dubai World bringing sukuk

DB World Ltd., (A1/A+) plans a benchmark-sized 10-year plus dollar-dominated sukuk.

A roadshow in the United States will be held this week.

The Dubai, United Arab Emirates-based port operator is 100% but indirectly owned by the government.

South American deals

The Republic of Colombia plans to issue $1 billion equivalent of 20-year notes (Ba2/BB+/BB) with a minimum yield of 9.85%, according to a source close to the deal.

Citigroup and Deutsche Bank will bring the deal to market via auction this Friday.

The notes will be denominated in pesos but all payments will be made in dollars.

Hynix lines up refinancing deal

From the corporate sector, South Korea's Hynix Semiconductor is expected to issue $500 million in senior unsecured notes with expected 10-year maturity (Ba3/BB-/BB).

Citigroup, Credit Suisse, Goldman Sachs & Co., Korea Development Bank, Merrill Lynch & Co. will run the books for the debt refinancing deal.

Turkey, Tartarstan banks join pipeline

Meanwhile a couple of banks unveiled new bond offerings.

BankPozitif (BB) will issue 5-year dollar-dominated loan participation notes.

The Istanbul-based retail bank will be on the road until Friday.

Tartarstan's Akbars Bank (Ba3//BB-) will issue medium-maturity dollar-dominated bonds under Regulation S.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.