Emerging market debt tracks U.S. equities higher; two Korean corporates set price talk

By Reshmi Basu and Paul A. Harris

New York, Sept. 25 - Emerging market debt saw higher prices Monday, tracking U.S. equities upwards as investors became somewhat more comfortable with the U.S. growth picture.

In the primary market, two Korean corporates set price guidance for deals expected to price this week.

Korea Western Power Co., Ltd. (Kowepo) set final guidance of mid-swaps plus 54 to 55 basis points for its $150 million maximum offering of 10-year fixed-rate notes (A1).

Guidance on the Regulation S issue, which is expected to price Tuesday at the London market open, narrowed from an initial range of mid-swaps plus 55 to 60 basis points.

Barclays Capital and Deutsche Bank are managing the sale.

Also, the Export-Import Bank of Korea (Kexim) plans to price a maximum of $1 billion of senior unsecured notes (A3/A/A+) in two dollar-denominated tranches this week.

The Seoul-based official export credit agency plans to sell five-year floating-rate notes. The guidance is Libor plus the mid-to-low 20 basis points area.

Kexim also plans to sell 10-year fixed-rate notes. The initial guidance of the fixed-rate notes is mid-swaps plus the low-to-mid 30 basis points area.

Tranche size remains to be determined.

Barclays Capital, Credit Suisse, Morgan Stanley and UBS are managing the Rule 144A/Regulation S transaction.

EM sees better sentiment

Emerging market debt saw a better tone Monday on the back of higher equities. U.S. stocks rose after Federal Reserve President Richard Fisher suggested that inflation would be contained by a slowing economy.

Nonetheless, the session was not without its volatility as equities seesawed throughout the day, remarked a trader, adding that there are "a lot of concerns hanging over the market."

Last week, emerging markets saw spreads kick out as headaches emerged on the local political front as well as from the U.S. economic side. Jitters over the U.S. economic picture, along with political troubles in countries such as Brazil, Ecuador, Hungary, Poland and Thailand stymied investors' appetite for risk, particularly higher beta credits. As a result, the JP Morgan EMBI+ Index fell 0.5% for the week, while spreads widened by 22 basis points versus U.S. Treasuries.

"Those EM ailments still sort of linger, but the market is higher on equities today [Monday]," said the trader.

He added that Ecuador still trailed the market on election jitters while Argentina also underperformed. Both saw their spreads widen by six basis points Monday.

Ecuador continued to lag as weekend polls showed that Rafael Correa, friend of Venezuelan president Hugo Chavez, pulled ahead of center-left candidate Leon Roldos by eight points, according to a Cedatos Gallup survey.

During the session, the Ecuadorian bond due 2030 gave up 0.25 to 92.25 bid, 93.25 offered.

Brazil jittery on graft probe

Brazil's local markets saw a volatile session Monday ahead of this weekend's presidential election. Local markets have seen investors lighten up positions on worries that president Luiz Inacio Lula da Silva will see his support wane in Congress.

Last Wednesday, it was learned that the country's Supreme Electoral Court had opened a probe into whether Lula played a role in an alleged scheme to purchase documents meant to discredit the opposition party. That news put some pressure on Brazil's local and external markets.

On Friday, Brazil's sovereign curve rebounded on short-covering as investors squared up their positions to insulate themselves in the event that any damaging news surfaced over the weekend.

Meanwhile newspapers and weekly magazines focused on the scandal, but there were no new developments revealed, according to a market source.

However, some weekend polls showed that Lula, while remaining the frontrunner, was losing support, raising the possibility of a second round of voting in the election.

But stronger equities helped insulate Brazil's external debt from political noise. In trading, the Brazilian bond due 2040 added 0.30 to 129.30 bid, 129.45 offered.

Sources noted that the overall market traded without conviction on Monday. The JP Morgan EMBI Global index was unchanged on a spread basis to 217 basis points versus Treasuries.

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