Emerging market shifts to idle as oil breaks $60 per barrel; Vneshtorgbank sells $1 billion of bonds

By Reshmi Basu and Paul A. Harris

New York, June 27 - Emerging market debt showed little price movement Monday as oil prices topped $60 per barrel.

Overall, both the primary and secondary markets were extremely quiet as summer sloth takes over, said sources.

But as a big exception to the general tone, Moscow-based Vneshtorgbank sold $1 billion of 30-year bonds (Baa2/BB+/BBB-) at par to yield 6¼% via Deutsche Bank.

Overall emerging markets debt traded flat Monday with thin volume, curbed by uncertainty created by high oil prices, said sources. The market is also in a holding pattern as it awaits Wednesday and Thursday's Federal Open Market Committee meeting.

The market is going to wait to see if the Fed changes the language in its statement, said a syndicate source.

The FOMC is expected to announce a quarter percentage-point rate hike for its ninth straight increase.

Nonetheless, emerging markets held up well with little volatility Monday, despite oil closing above $60 per barrel, an impressive feat, according to Enrique Alvarez, Latin America debt strategist for think tank IDEAglobal.

The low interest environment coupled with the dimming of Brazil's political scandal has helped provide resilience, noted Alvarez.

Also the sidelining of investors ahead of the Fed meeting has translated into less trading, remarked Alvarez, which in turn has resulted in less volatility.

"It's a week where, unless crude goes on an unforeseen rally that provides some sort of shock to the market, you are going to see people waiting and seeing what the Federal Reserve says and moving from that," he remarked.

As evidence as to how tight the range is, one only needs to look at the movement of the Brazil bond due 2040, noted Alvarez.

It was spotted down 10 cents early in the session and was a mere five cents lower towards the end of the day, which is negligible, he pointed out.

For the day, the Brazil C bond was unchanged at 102 bid. The Ecuador bond due 2030 slipped ¾ of a point to 82 bid. The Mexico bond due 2009 was up 0.025 to 119¼ bid. The Russia bond due 2030 gained 1/8 of a point to 111½ bid.

This week's pressure point is oil prices, noted Alvarez.

"If we see a much higher crude oil price over the course of end of week that in turn affects equity prices in the U.S., I would think we would see some pressure on the downside in emerging markets," said Alvarez.

Oil closed at $60.54, up 70 cents.

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