Emerging market debt tracks U.S. stocks higher; EuroChem sells $300 million in new debt

By Reshmi Basu and Paul Deckelman

New York, March 12 - Emerging market debt edged higher Monday as it traded in tandem with stronger U.S. equities, despite renewed nervousness in the U.S. sub-prime mortgage market and a decline in oil prices.

In the primary market, Russian fertilizer producer EuroChem Mineral and Chemical Co. OJSC sold a $300 million offering of five-year bullet notes (/BB-/BB- expected) at par to yield 7 7/8%.

Citigroup, ING and UBS were joint bookrunners for the Regulation S offering of loan participation notes, which were issued via EuroChem Finance plc, an Irish special purpose vehicle.

In other primary news, Moscow-based integrated oil company TNK-BP International Ltd. set price guidance for a two-part offering of global bonds (Baa2/BB+/BBB-).

Guidance for the tranche of five-year bonds was set in the area of 175 basis points more than Treasuries. The size of the tranche is expected to be $500 million.

Meanwhile the tranche of 10-year bonds was talked at Treasuries plus 225 basis points area. It is expected to be $750 million in size.

ABN Amro, Barclays Capital and Citigroup will manage the Rule 144A and Regulation S sale.

Pricing is expected to take place Tuesday.

EM firm

Back to the broader secondary market, emerging markets debt traded with a firm tone Monday as it tracked U.S. equities higher, with stocks propelled by news of several merger deals announced over the weekend.

In trading, the spread on the JP Morgan EMBI+ index widened by one basis point to 180 basis points versus U.S. Treasuries. The category was unable to keep pace with Treasuries, which rallied on a flight to quality trade.

Among benchmark names, the bellwether Brazilian bond due 2040 added 0.20 to 133.90.

The Russian bond due 2030 was unchanged at 113.31. And the Turkish bond due 2030 edged up by 0.19 to 153.

In general, secondary trading seemed largely featureless on Monday, with little real impact from any news seen, and nothing really standing out.

Five-year credit default swap contracts on Philippines debt tightened several basis points in Asian trading to around the 119-123 basis point level, with little change seen afterward.

Sovereign cash bond prices were meantime steady, with the nation's 2032 issue quoted at the 97.5 bid, 97.875 offered level.

Sentiment was seen to have been helped by the weakening of Japan's yen.

Indian bonds firmer

On the local front, Indian bonds firmed, helped by positive results from Friday's auction of new 10-year debt, which was reportedly drew bids for triple the amount of bonds being sold, considered an improvement on the last auction, held a month earlier.

The bonds attracted interest against a backdrop of overnight loan rates staying at their lowest level in over a year.

The good demand for the new paper carried over into the market for the country's existing bonds; the local-currency benchmark 7.37% bonds due 2014 were quoted up 0.17 point to 96.63, with the yield tightening 3 bps to 8%.

MagnaChip down

In the U.S. junk bond market, a trader saw South Korean computer chip manufacturer MagnaChip Semiconductor International Ltd.'s 8% notes due 2014 trading down about a point for most of the session - but he said that late in the day, there was more selling, which dropped the bonds a total of 3 points on the day to 64 bid, 68 offered. He saw no fresh news out on the company of any significance.

Those MagnaChip bonds had been batted lower for most of last week, down about 2 points or so total, before "regaining their composure" Friday, as one trader put it, and recovering about 1½ points of those losses.

A trader at another desk saw its senior floating-rate notes due 2011 also lower Monday, at 87.5.

More volatility expected

Overall spreads for the asset class have bounced back to levels seen before the heavy global market sell-off, which started late February. But trading volumes are still on the lighter side as investors remain cautious, said a market source.

He noted that the market may be trading with a firmer tone, but there are still risks on the external side, which may not be "reflected in the current spread levels".

Among those concerns are the meltdown in the U.S. sub-prime mortgage sector as well as the unwinding of the carry trade.

"It seems like a lot of people are not buying that the sell-off is over," he added.

"I think there may be some more room for volatility ahead, especially given this week's deluge of [U.S.] economic data."

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