Emerging market debt quiet but firm; Argentina to sell $500 million of Bonar V bonds

By Reshmi Basu and Paul A. Harris

New York, May 2- Emerging markets traded with a firm tone Tuesday, proving resilient even as the yield on the 10-year Treasury hovered at 5.12%.

Spreads for emerging market debt widened by two basis points Tuesday in what was described as a quiet session.

On the new issue front, Argentina will auction a $500 million offering of Bonar V bonds due 2011 (//B-) on Wednesday.

The bullet bond issue will carry a 7% coupon and will be payable in dollars.

The deal is expected to do well. But since the market has not been overly active, it is difficult to gage what the appetite will be for local risk, observed Enrique Alvarez, Latin American debt strategist for research firm IDEAglobal.

He added that the deal will serve as barometer for investors' appetite for Argentina, given the relatively poor demand for previous issues in the aftermath of the country's 2005 debt restructuring.

Meanwhile several recent issues out of Russia and Kazakhstan were slightly down in the secondary market Tuesday, according to a market source.

Last week, Moscow-based commercial bank Nomos Bank sold a $150 million offering of three-year senior notes (Ba3//B+) at par to yield 8 ¼% last week.

During London trading hours Tuesday, the issue was spotted at 99.90 bid, 100.20 offered.

Also tapping investors last week, Russian Standard Bank sold a $350 million offering of five-year notes at par to yield 8 5/8%. The issue was also so seen at 99.90 bid, 100.20 offered.

And in Tuesday's activity Kazakhstan Temir Zholy Finance BV placed $800 million of senior notes in two tranches (Baa1/BB+/BBB).

The Kazakhstan government-owned railway company priced a $450 million issue of 6½% five-year notes at 99.30 to yield 6.667%.

The five-year notes were spotted at 99.25 bid, 99.55 offered.

Temir Zholy also priced a $350 million issue of 7% 10-year notes at 98.292 to yield 7.243%.

The 10-year notes were quoted at 98.05 bid, 98.35 offered.

Another market source said that the pricing appears attractive owing to a relative scarcity of Kazakhstan sovereign and quasi-sovereign debt.

EM range-bound

Emerging market debt saw an "uneventful" trading session, according to a trader. Prices were range-bound, but the market did trade with a firm tone, he said.

The big news out of Brazil was that the real continued to rally after piercing through 2.10 last Friday. The real was spotted at 2.0575 bid Tuesday.

During the session, the Brazilian bond due 2040 gained 0.35 to 128.75 bid, 128.80 offered. The Ecuadorian bond due 2030 gained 0.10 to 103.30 bid, 103.60 offered. The Venezuelan bond due 2027 was higher by 0.15 to 127 bid, 127.35 offered.

Bolivia moves to the left

In other developments, Bolivia may have made headlines Monday, but news of the country's attempts to nationalize its oil and gas sector did nothing to undermine prices in the region.

On Monday, new president Evo Morales seized control of the country's oil and gas fields and told foreign energy companies that they had 180 days to revise contracts with state-run Petroliferos Fiscales Bolivianos.

To drive the point home, the government sent in troops in order to protect Bolivia's oil and gas fields from any sort of sabotage attempts.

Furthermore, the incident complicates operations for Brazil's state-controlled oil producer Petroleo Brasileiro SA and Repsol YPF SA,

However on the external side, the story has had little impact on prices given that Bolivia does not have any tradeable instruments, according to Alvarez.

Additionally, the issue has failed to trigger a contagion effect for its neighbors such as Chile and Peru.

Prior to this incident, Brazil and Bolivia had a good relationship. The question is how this will test the two country's relationship, given that Petrobras' interests are now being stymied, noted sources.

Alvarez also points out that the alliance between Venezuelan president Hugo Chavez and Morales is becoming stronger as Bolivia makes a leap to the left.

But Bolivia's attempts to nationalize its resources will not be easy to pull off since some of its neighbors are pro-market and less left leaning.

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