Emerging markets up again on Friday's weak job numbers; Jamaica prices €150 million 10-year bonds

By Reshmi Basu and Paul A. Harris

New York, Oct. 12 - Emerging market paper continued to ride higher on Friday's weak job numbers as U.S. Treasuries strengthened on oil concerns.

"Across the board prices were higher," said a Latin America debt strategist at Refco EM.

"Brazil led the rally.

"The market is reacting to the numbers that we had on Friday. The employment creation numbers here in the U.S gives the Treasury market support and has a positive outlook for emerging markets overall," he added.

On Friday, emerging market paper soared on news that 96,000 jobs were created in the United States, a figure that come in short of the market consensus.

That upbeat tone carried on after the Columbus Day holiday into Tuesday's trading.

The Brazil C-bond added 0.37 to 100.37 bid in trading Tuesday while the bond due 2040 rose ¾ to 115.40 bid.

Russia's bond due 2030 was up 1/8 to 99 1/8. The Mexico bond due 2008 added 0.30 to 114.80 bid.

And the oil spike gave a boost to Ecuador. Its bond due 2030 was bid at 881/4, up 1¼ on the session.

U.S Treasuries were higher in trading Tuesday as U.S. oil prices hit record highs - although the subsequently backed off. The yield on the 10-year Treasury note was at 4.10%, down from 4.13% on Friday.

"Everyone is still watching oil prices, so I think that is what is moving [U.S.] Treasuries," said a sellside source.

Overall, the JP Morgan EMBI + was up 0.25% during Tuesday's session. Its spread to Treasuries tightened 25 basis points to 396 basis points.

Looking ahead, emerging market paper will move one or two points higher during next week, predicted the Refco strategist.

"I'm bullish on the trade," he said.

Jamaica prices €150 million bonds

The Government of Jamaica priced €150 million of 10½% 10-year bonds Tuesday (B1/B) at 99.50 to yield 10.582%. The deal came to market via Deutsche Bank and Commerzbank.

"Jamaica is still a pretty weak credit," said the sellside source.

Nonetheless, the issue was attractive because it was cheap and delivered a 10½% coupon in euros - something that is hard to come by these days, said the source.

The books closed with more than €350 million in orders before the market opened in New York, according to a market source. Only €20 million of the orders were investors switching existing bonds for the new issue.

"I think there is some element of people buying it more because of yield," said the sellside source. "The story has improved somewhat but it still is a very heavily indebted country."

Furthermore, the source was surprised at the country's ability to continuously access the euro market in the way that they have.

"The reason that they are doing it in euros and not in dollars is because it would cost them more obviously in dollars.

"The U.S dollar-base investors will focus more on the credit fundamentals," commented the sellside source.

On July 13, Jamaica priced €200 million of 11% notes due 2012.

In trading Tuesday, the Jamaica 10½% due 2009 was seen at 105.5 bid, 106 offered, the 11% bond due 2012 was at 105.25 bid, 105.75 offered and the 10½% due 2014 was at 100.40 bid, 100.55 offered.

Codelco hits the road

Also in primary market news, Corporacion Nacional del Cobre de Chile will launch a roadshow for its $500 million 10-year senior unsecured notes (A2/A) in Hong Kong on Oct. 14 via Citigroup and HSBC.

The roadshow will then move to Singapore on Oct. 15 and travel to the United States and Europe during the week of Oct. 18. .

"I'm sure it's going to come very tight. The bonds are trading through the sovereign if you look at them on a Libor basis," said the sellside source.

"You could get to the point where it looks like it's coming even potentially through other comparably rated global mining companies.

"But it's a good company and it's a good time for them to be in the market with copper prices where they are."

The source added that Codelco is one of those issuers that typically does not upsize a deal even if it has a massively oversubscribed book.

"They want to raise every last penny that they can in the local market and only then will they see what they can do in the international market. They're penny pinchers," said the source.

Codelco's bonds due 2013 are trading around 76 basis points over U.S. Treasuries, according to the source. "And the curve is worth 10 or 11 bps."

Guidance should be no more than mid-to-high 80s over U.S. Treasuries, noted the sellside source.

China goes on the road

The Ministry of Finance of the People's Republic of China will start a roadshow for its €1 billion offering of 10-year bonds (A2/BBB+) in Hong Kong this week.

Deutsche Bank, BNP Paribas and UBS AG are running the Regulation S-only bond offering.

"It's not even targeted to the U.S. It's much more focused on euros than dollars," the sellside source said.

"A billion euros is a big deal for any Asian issuer.

"You have to question whether that will take a few extra basis points to get it done

"But having said that, China trades at very tight levels. If they have to pay a few bps more it's not the end of the world."

One reason why China can skip over the U.S. market is because they have more than enough locals willing to buy its sovereign paper.

"It was a euro-denominated transaction first and foremost. The dollar bit is a bit an add-on. And to do $500 million, you can sell it just to locals," noted the source.

Another issue joining the October pipeline is Venezuela's Electricidad de Caracas with a bond offering of $100 million via ABN Amro.

"That's intellectually interesting because you still have capital controls in Venezuela," said the sellside source.

"As long oil prices are as high as they are, I don't think people are going to be too worried about whether or not the central bank is going to be willing to make foreign exchange available to service debt.

"It will be interesting to see if investors are ready for this. I suspect that because of its moderate size the deal can get done."

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