Emerging market debt up on oil spike; Hungary sells €500 million floating-rate notes

By Reshmi Basu and Paul A. Harris

New York, Oct. 25 - Emerging market debt moved higher in trading Tuesday, buoyed by higher oil prices even as U.S. Treasury yields came close to a six-month high.

During the session, the JP Morgan Global Diversified Index gained 0.24% while spreads to Treasuries tightened nine basis points to 253 basis points.

In the primary market, Hungary sold €500 million of seven-year floating-rate notes (A1/A-/A-) at 99.869 with a coupon of three-month Euribor plus five basis points via BNP Paribas and Dresdner Kleinwort Wasserstein.

Elsewhere in Asia, the Republic of Korea set revised price guidance for $1 billion equivalent of 10-year euro-denominated bonds and 20-year dollar-denominated bonds (A3/A/A+).

Guidance for the 10-year tranche of euro-denominated bonds was revised to mid-swaps plus 25 basis points to 27 basis points from 30 basis points while talk on the 20-year tranche of dollar-denominated bonds was revised to Treasuries plus 97 to 100 basis points from 105 basis points.

ABN Amro, Citigroup, Goldman Sachs and UBS Investment Bank are managing the sale.

Also, Chinese property group Hopson Development Holdings Ltd. is talking its $300 million offering of seven-year senior unsecured notes at a yield in the 8% area via Credit Suisse First Boston and Morgan Stanley.

Out of Brazil, Companhia Vale do Rio Doce (Baa3) said it now plans to reopen its 8¼% bonds due Jan. 17, 2034 on Wednesday instead of issuing new 40-year bonds as it had originally planned.

Price guidance for the re-tap has been set in the area of 7.55%.

Market sources told Prospect New that there was not enough demand for a 40-year bond.

ABN Amro and HSBC are joint bookrunners for the sale.

EM up on oil

Oil producers saw their debt reach higher levels in response to rising oil prices Tuesday. Crude prices spiked $2.12 to settle at $62.44 a barrel on the New York Mercantile Exchange.

During the session, the whole Venezuelan curve moved up, said a trader. He spotted the bond due 2013 up 1.10 to 120.35 bid while the bond due 2027 gained 0.95 to 114.90 bid at 3 p.m. ET.

Ecuador's bonds also gained, he said, adding that the tension between the president and congress has dissipated for the short term.

The country's bond due 2012 added ¾ of a point to 99 bid while the bond due 2030 was bid at 88¼ bid, up 1¼ points. The country's portion of the EMBI Global Index narrowed 23 basis points to 683 basis points more than Treasuries. In the last two sessions, the country has recovered 44 basis points.

However, while Ecuador's bonds got a push Tuesday to the upside, the sovereign will see further volatility in weeks ahead, according to one market source. President Alfredo Palacio might be able to stay in power despite increasing political noise, but the market is becoming increasingly sensitive to headline news, noted the source.

Oil spikes also helped Colombia move higher Wednesday. But there was also good news on the International Monetary Fund front, said the source. The IMF approved its first review of the country's $583.8 million IMF-backed loan program on Monday.

The Colombia bond due 2033 was spotted up 1¼ points at 124½ bid. Its portion of the EMBI Global Index tightened by 16 basis points.

Peruvian paper was also tighter. Its component of the EMBI Global Index narrowed by 10 basis points.

Meanwhile Turkish paper saw an up-tick on news that it had reached a decision with the International Monetary Fund on its current loan program. Russian paper also moved up on a Moody's upgrade to Baa2.

At late session, the Turkish bond due 2030 added 1.13 to 146¼ bid. The Russia bond due 2030 was up 0.37 to 111½ bid.

Those gains came despite weakness in the U.S. Treasury market.

Uncertainty as to where the Fed is heading led Treasury yields to stab a near-six month high.

How Fed chief nominee Ben Bernanke will deal with inflationary pressure is creating some aversion.

The yield on the 10-year Treasury note stood at 4.51% from Monday's 4.45% close. On Oct. 14, the yield reached 4.53%, a six month high.

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