Morocco to sell benchmark 10-year euro deal; Argentina, Ecuador, Venezuela better; EM beats Treasuries

By Paul Deckelman and Aaron Hochman-Zimmerman

New York, June 14 - Thursday's emerging markets session in the U.S. saw some spread-tightening even as Treasury yields eased.

In the primary market the spotlight remained on sovereign and quasi-sovereign names as Hungarian Development Bank set terms on a euro-denominated issue while the Kingdom of Morocco was heard to be bringing a benchmark-sized euro-denominated deal.

"It's not a bad market right now," a sell-side source advised Prospect News on Thursday.

"Things are stable." the source added, noting that the market is open to issuance from known entities, as long as they are not too aggressive.

Thursday's new issues

The Hungarian Development Bank priced a €400 million deal with a coupon of 4 7/8% to yield mid-swaps plus nine basis points.

The state-owned bank is based in Budapest and deals in the allocation of public and market resources for development purposes.

Banco Hipotecario SA completed its $200 million of Argentinean peso-linked three-year notes (Ba1/B+) at par to yield 11¼%.

The price hit its talk of 11¼%, which had earlier been narrowed from the 11 3/8% area.

The notes are due June 21, 2010.

Citigroup and Deutsche Bank ran the books.

The issue is part of the bank's $1.2 billion senior unsecured global medium-term note program.

Price talk on corporate deals

Rede Brasil Sul (RBS) issued talk in the 11½% area for its expected issue of $200 to $300 million 10-year notes (BB-).

Standard Bank will bring the deal to market for the multimedia company.

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

Pricing is expected Friday.

Russia's Severstaltrans Group released talk of 8½% for its expected $150 million sale of three-year notes.

The bonds have a put option after two years.

ING will run the books for the rail, port services and transportation company which operates in Russia, the CIS and the Baltic states.

The deal is expected to price Friday.

Africa and the Middle East

The Government of Morocco (Ba1/BB+/BBB-) announced plans to sell benchmark-sized euro-dominated 10-year sovereigns.

Citigroup and JP Morgan will run the books for the deal.

The deal is expected to launch the week of June 18, market conditions permitting.

Elsewhere Dubai's DB World Ltd. (A1/A+) added a 30-year conventional tranche to its already expected dollar-dominated 10-year sukuk.

Barclays, Citigroup, Deutsche Bank and Dubai Islamic Bank have the books for the sukuk.

Bookrunners for the 30-year conventional notes will be Barclays, Citigroup, Deutsche Bank and Lehman Brothers.

The U.S. roadshow ends Friday.

Meanwhile South Africa's Absa Bank disclosed plans to issue up to €500 million of bonds under its euro medium-term note program.

EMBI tightens

In the secondary market, a generally better tone prevailed, with investors in emerging debt taking their cue from U.S. equities, which saw their second consecutive day of sizable gains, rebounding from big losses earlier in the week, and U.S. Treasuries, which finished on the downside on potentially inflationary data - but with yields still below the peak levels seen earlier in the week.

The 10-year U.S. note - whose yield on Wednesday had fallen a full 9 basis points to around the 5.20% level - fell as far back during the day Wednesday to send its yield climbing back to 5.25%, but recovered a little later on, climbing off its lows, and, with the yield ending at 5.22%, still well below the peak intraday level of 5.32% and the peak close at 5.29% it had hit earlier in the week.

With emerging bonds generally outperforming Treasuries, the higher yields on the U.S. paper produced an overall spread-tightening effect, with the widely followed EMBI+ index compiled by J.P. Morgan & Co. showing an average emerging spread versus Treasuries of 155 bps - well down from levels above 160 bps seen late Wednesday.

A New York-based trader in Latin American debt said that he saw the market "trading well. Spreads were tighter," with some of the riskier, higher-yielding credits like Argentina and Venezuela tightening by 6 bps or 7 bps, while "the higher grade stuff," such as Brazil, Peru and Colombia was tighter by about 2 bps to 3 bps on the session.

He said the market was characterized by "mixed flows across the desk - we've seen better buying over the past day and a half as Treasuries have rebounded off the lows."

He saw Colombia - which sold some $1 billion of new peso-denominated bonds on Thursday in order to fund a tender offer for nine dollar-denominated issues announced earlier in the week, "trading well."

He said the nation's bonds "traded very well [Thursday] and it's hanging in there today, about 3 bps tighter."

Perhaps the biggest gainers were the most troubled names, with Argentina - seen by most observers as the worst-performing EM market sovereign this year, its value down over 14% from year-end 2006 levels - leading the way.

The country's dollar-denominated Par bonds were seen up 2.7% in value while its peso-denominated Discount bonds were seen up 1.5% on the day.

Its spread versus Treasuries narrowed by 22 bps on the day to stand at 288 bps, that measure's lowest level in months.

A major factor in the rebound in the bonds was the pounding they had taken over the previous several sessions, which hammered prices down to attractive buying opportunity levels.

Venezuela improves

Another upsider was Venezuela, whose bonds - recently roiled by internal political turmoil and the threat of a possible default in the event of a Venezuelan withdrawal from the International Monetary Fund - were buoyed after a Caracas newspaper reported that the government is considering buying back bonds whose indentures require the country to stay in the IMF or face a default.

Such a move might be a face-saving strategy to allow president Hugo Chavez to carry out his threat to leave the global lending agency without actually triggering a default.

The possibility pushed Venezuela's debt up 0.82% on the day, with its benchmark 9 3/8% dollar-denominated bonds due 2034 up ¾ point at 111 bid, as the bonds yield tightened by 6 bps to 8.34%.

Its benchmark 9¼% dollar issue - which at one stage in the day was up 1¼ points - came off that peak level to finish up about 2/3 point, around the 110 area.

A lift for Ecuador

Ecuador's bonds were likewise seen better, up 1.17% on the day, after president Rafael Correa's government indicated that it will make Friday's scheduled $30.5 million interest payment on its global bonds due 2015 - this after spending some weeks suggesting that debt service might have to take a back seat to the administration's social spending plans.

The most widely traded EM issue, Brazil's 11% dollar-denominated global notes due 2040, pushed up as much as ½ point on the session before finally ending up ¼ point, slightly above the 130.75 mark.

Earlier in Asia, Philippine sovereign bonds were seen lower on profit-taking, with the 2031 benchmark bond at 108.50 bid, 110 offered, and its 2032 notes at 94.75 bid, 95 offered.

While the cash bonds were down day-over-day, the price of the five-year credit default swap was essentially steady at 102-107 bps, versus 102-106 bps the day before.

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