Emerging market debt edges higher despite softer U.S. markets; Evraz sets talk for 10-year notes

By Reshmi Basu

New York, Nov. 1 - Emerging market debt inched higher in trading Tuesday, despite downturns in the U.S. stock market and the U.S. Treasury market.

In an active primary session, Russia's Evraz Group SA set price guidance for a dollar-denominated offering of 10-year fixed rate notes (B2/B+/B) in the area of 8½%.

ING and UBS Investment Bank are running the Rule 144A/Regulation S transaction.

Also, Argentina's Banco Hipotecatio SA set initial price guidance for a $100 million offering of five-year senior unsecured bonds (/B-) at 9½% to 9¾%.

Deutsche Bank and Citigroup are joint lead managers for the Regulation S transaction.

Out of Mexico, two corporates plan to hit the road.

Controladora Mabe SA de CV (MABE) plans to start a roadshow this Thursday for a $200 million offering of 10-year notes (/BBB-/BBB-) via Citigroup and ABN Amro.

And Cablemas SA de CV plans to start a roadshow for a $165 million offering of 10-year senior notes (B1/BB-) this Wednesday in New York.

Credit Suisse First Boston is the bookrunner for the Rule 144A/Regulation S transaction. UBS is the co-manager.

EM spreads tighter

On Tuesday, as expected, the Federal Reserve raised its short-term interest rate target for the 12th consecutive time to 4%. Most important to investors, the statement accompanying the hike contained no punches.

"The cumulative rise in energy and other costs have the potential to add to inflation pressures," the Fed said in its statement.

The Fed also suggested that it is more concerned about inflationary pressure than a slowdown in the U.S. economy brought on by hurricanes that roared through the Gulf Coast.

"Elevated energy prices and hurricane-related disruptions in economic activity have temporarily depressed" production and employment, the Fed said, but added that the "planned rebuilding in the hurricane-affected areas" will help propel the economy forward.

Market sources said that the 25 basis point hike had already been priced in and there appeared to be little reaction to the news.

A trader noted that emerging markets prices were higher even as U.S. stocks and Treasuries drifted lower.

"Equities are down a little bit. [U.S.] bonds are down a little bit, so we're not tracking either of those," he remarked, adding that local equity markets were trending higher such as Brazil and Mexico.

The trader credited technicals for the market's continuing ability to grind tighter

"In general, we're probably seeing money flow into the market instead of out.

"Market volumes are moderate and seem to be following the same trend of the last couple of days, which is a little bit tighter," he said.

During the session, the Brazil bond due 2040 gained 0.05 to 120.20 bid. The Turkish bond due 2030 moved up half a point to 145¾ bid. The Russia bond due 2030 added 0.13 to 111 1/8 bid.

Spreads on the JP Morgan EMBI+ Index tightened by 2 basis points to 251 basis points more than Treasuries, according to a market source.

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