Emerging market debt edges up on dollar basis; San Miguel sets talk for perpetuals

By Reshmi Basu and Paul A. Harris

New York, April 24 - Emerging market debt was a tad higher Monday on the back of U.S. Treasuries.

In the primary market, a few corporate issuers set price guidance for deals expected to price this week.

From the Philippines, San Miguel Capital Funding Ltd. set preliminary price talk for a benchmark-sized offering of dollar-denominated perpetual hybrid preferred shares (Ba3) at the 9% area.

Citigroup, Credit Suisse, Deutsche Bank and HSBC are joint bookrunners for the Regulation S deal.

Moving to Venezuela, Sidetur Finance BV set price guidance for a $100 million offering of senior unsecured amortizing notes (//B+) at the 10% area.

Deutsche Bank is the bookrunner for the Rule 144A/Regulation S transaction.

Next, Abu Dhabi Commercial Bank (Aa3/A) set price talk for a dollar-denominated benchmark-sized offering of 10-year floating-rate notes in the area of Libor plus 65 basis points via Deutsche Bank.

EM tracks U.S. Treasuries

Emerging market was a pinch higher Monday, tracking U.S. Treasuries as the yield on the 10-year note slipped back below the 5% threshold to 4.987%.

At session's end, the Brazilian bond due 2040 was unchanged at 128.25 bid, 128.35 offered. The Argentinean discount bond due 2033 added 0.05 to 99.50 bid, 99.85 offered.

The asset class traded in a tight range as spreads on the EMBI index were seen at 185 basis points versus Treasuries, according to a trader.

Even though the market is trading at or near historic tight levels, the asset class has a little more room to grind still tighter, noted sources.

In general terms, the market may look overextended but that story is dependent on how the crude oil markets play out, said Enrique Alvarez, Latin American debt strategist for research firm IDEAglobal.

If crude oil prices continue to rise, then emerging markets will likely see higher inflows. Even though oil prices slipped $1.84 to close at $73.33 per barrel on profit-taking on Monday, geopolitical uncertainties continue to underscore worries over global supply.

Despite the slippage in oil prices, credits in the sector performed well. During the session, the Ecuadorian bond due 2015 added 0.45 to 106.75 bid, 107.20 offered while the bond due 2030 gained 0.50 to 102.35 bid, 102.75 offered. The Mexican bond due 2026 moved up 0.25 to 152.50 bid, 153.25 offered. The Russian bond due 2030 was up 0.50 to 109 bid, 109.375 offered.

Peru, Venezuela underperform

In secondary trading, Peru and Venezuela underperformed the market.

Peru slipped as it looks as if former president Alan Garcia will face nationalist Ollanta Humala in the presidential run-off election.

At session's end, the Peruvian bond due 2033 was down 0.50 to 112 bid, 113 offered.

And in Venezuela, the Wall Street Journal reported that president Hugo Chavez is planning to up taxes and royalties on overseas oil companies with operations in the Orinoco River basin.

"That has to a certain extent shaken the credits just a tiny bit," noted Alvarez.

The Venezuelan bond due 2027 eased 0.10 to 125.75 bid, 126.20 bid.

Throughout this week, the asset class will be focusing on this week's U.S. economic reports for clues into likely future actions by the Federal Reserve. Among those scheduled are existing home sales on Tuesday, new home sales on Wednesday and the employment cost index and first quarter GDP on Friday. On Thursday chairman Ben Bernanke will speak to Congress' Joint Economic Committee.

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