Emerging market debt lower; Brazil reopens 2034 global bonds to add $500 million

By Reshmi Basu and Paul A. Harris

New York, Nov. 29 - Emerging market debt moved lower Tuesday amid new supply hitting the market and a downturn in the U.S. Treasuries market.

In the primary market, Brazil reopened its 8¼% bond due 2034 (Ba3/BB-/BB-) to add $500 million via Barclays Capital and Merrill Lynch. The retap comes a day after Venezuela sold $3 billion of new bonds to local investors.

The reopening priced at 99.325 to yield 8.311% or a spread of 362.5 basis points more than Treasuries. One source said that the issue was oversubscribed and attracted over $1 billion in orders.

This brings the total size of the issue to $2.5 billion.

In the secondary, the new issue moved up after pricing. One source quoted the 2034 bond at 99.80 bid, 99.95 offered. Nonetheless, the bond was down for the day. On Monday at 3 p.m. ET, the issue was seen at 100¾ bid, 101 offered.

Positive sentiment in EM

Despite recent spread widening, market sentiment is positive and is anticipated to be so through year-end, according to market sources.

Issuers have seen solid demand for their paper as the quest for yield continues, a positive sign for the asset class, noted one trader.

"We had a Brazil tap today [Tuesday]," added a buyside source. "You had Venezuela. You got Ecuador coming to town.

"Everybody seems to be taking up the new supply, at least sovereign-wise, pretty easily," he said.

However, political noise is surfacing in Argentina, which is weighing slightly on overall market sentiment, noted the buyside source.

Argentinean bonds lost ground again in response to the departure of economy minister Roberto Lavagna, who was fired by president Nestor Kirchner on Monday.

"It [Argentina] hasn't punctured the sentiment yet. I think Brazil showed that today [Tuesday]," he added.

Brazil's retap on Tuesday is reminiscent of past Mexican primary deals, observed the buyside source.

When the asset class was beaten down, Mexico would tap the market to show that they could bring deals during tough times, he noted.

"It seems to me that's what Brazil is starting to do."

Meanwhile during the session, the Argentinean par bond due 2038 lost 0.80 to 36¾ bid, 37.05 offered.

EM lower

Overall, emerging market debt ticked lower on new supply and a weaker Treasuries market, said another source. Treasuries were hit by stronger-than-expected reports on U.S. consumer confidence, housing and factories.

At the end of the session, the yield on the 10-year note stood at 4.48%, up from Monday's close of 4.40%.

That pushed emerging markets lower. The Brazilian bond due 2040 slipped 0.30 to 123.30 bid, 123.40 offered. The Russian bond due 2030 fell 0.57 to 112 5/8 bid, 112.933 offered. The Venezuelan bond due 2027 lost 1½ points to 116 bid, 116.40 offered.

And supply concerns hit Ecuador, said a second trader. The country is scheduled to launch a roadshow for a 10-year dollar-denominated bullet bond offering (Caa1/CCC+/B- (expected)) this Wednesday via JP Morgan and Deutsche Bank.

The Ecuadorian bond due 2012 fell half a point to 100½ bid, 101¼ offered. The bond due 2030 lost 1½ points to 92.10 bid, 92½ offered.

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