Emerging market paper softer as Treasuries slide; Telekom Malaysia plans $500 million notes

By Reshmi Basu and Paul A. Harris

New York, Aug. 23 - Emerging market paper drifted lower Monday as U.S. Treasuries retreated.

With a dearth of country headline news, emerging markets have been looking to the U.S. Treasuries for direction.

"With little news and liquidity, the market is vulnerable to any Treasury movements," said a trader. "Treasuries fell as oil dropped."

Treasuries cooled off Monday as oil prices simmered down in response to Iraq resuming pumping oil from its southern pipelines. Further lowering prices, Russia said it would boost exports.

Crude oil closed at $46.05 per barrel.

Latin American trading saw tight ranges, according to Enrique Alvarez, Latin American debt strategist for think tank IDEAglobal.

"You had the action tracking the U.S. Treasury market very tightly early in the morning. And then we sort of rebounded in Brazil.

"Brazil was off ¾ of a point, which is not very significant.

"Then we drifted back up. And that's more reflective of the big turnaround in oil prices today [Monday]," he said.

The Brazil C bond finished the day unchanged on a spread basis at 518 basis points. The Brazil bond due 2040 was down 0.15 to 105.20 bid.

The Mexico bond due 2026 fell half a point to 147¼ bid.

And Russia's bond due 2030 added 0.062 to 94.062 bid, tightening five basis points to 292 basis points.

Overall, the JP Morgan EMBI+ Index fell 0.11%. Its spread to Treasuries tightened five basis points to 434 basis points

Hutchison Whampoa stable

Hong Kong's Hutchison Whampoa said last Thursday its first-half net profit doubled as asset sales counterbalanced losses at its third-generation mobile phone unit, which helped stoke a rally.

"The Asian market is getting tighter, with Hutchison's rally coming to an end," a trader said.

Hutchison's bond due 2022 was unchanged Monday, trading at Treasuries plus 222 basis points.

Assessing oil outlook

Looking ahead, with little headline news in Latin America, trading is in a wait and see mode as investors are trying to assess the outlook for crude oil, said Alvarez.

"How is that going to influence the U.S. economy?" he said. "And how that's going to shape the upcoming U.S. economic figures?"

But the oil story is further complicated by unknowns such as how demand will change when winter hits the northern hemisphere.

"In the long term, it is a very difficult picture to assess because obviously there are some supply and demand concerns.

"The market [emerging markets] swings along with large swings in oil prices.

"It's not swinging tit for tat as it has been doing with U.S. Treasuries market, but it is very susceptible to movements in the crude oil market," he added.

"The ongoing story is Treasuries and crude oil."

Telekom Malaysia bringing $500 million

In the quiet primary market, news emerged of another Asian corporate that is expected to price in September.

Telekom Malaysia Bhd (long-term foreign currency ratings A-/Baa2) is expected to sell $500 million of 10-year global bonds in late September.

Deutsche Bank Securities and UBS Investment Bank will run the books for the Rule 144A/Regulation S offering.

Telekom Malaysia, based in Kuala Lumpur, is a provider of voice and data services.

"September will be a busy month for Asian issuers," said another trader.

China Development Bank, Republic of China and Korea are already slated to issue in September.

While September is expected to be a sizzling month for Asia, Latin America appears to be missing in action from the pipeline.

"On the pipeline, there is no specific news," observed IDEAglobal's Alvarez.

However, there is a band of usual suspects that are expected to come to market this year, such as Brazil, which needs to raise some $1 billion in 2004, and some prefinancing from Colombia for 2005

Anytime right now would be a good time for Brazil to issue, especially since its bonds are in demand on the trading floors, according to Alvarez.

"There is nothing really strong on the rumor mill," he added.

Latin American corporates trading flat

Latin American corporates were flat during Monday's session.

Mexico's paper product company Corporacion Durango SA de CV's bond due 2009 was unchanged at 56½ bid, 58 offered.

Brazil's petrochemical company Braskem's bond due 2008 was unchanged at 106½ bid, 108 offered.

And Argentina's Telefonica Movil's bond due 2008 was unchanged at 108½ bid, 109½ offered.

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