Emerging market debt trades flat to stronger; several corporates tap primary

By Reshmi Basu and Paul A. Harris

New York, Feb. 8 - Emerging market debt traded flat to slightly higher Wednesday, the day before the closely anticipated auction of new 30-year U.S. Treasury bonds.

In the primary market, several corporates issued new paper.

Out of Russia, VTB Capital SA (JSC Vneshtorgbank) sold €500 million of 10-year eurobonds (A2/BBB/BBB) at par to yield 85 basis points over mid-swaps.

The deal came at the tight end of price guidance, which was narrowed to 85 to 90 basis points from initial guidance of 90 to 95 basis points.

Deutsche Bank Securities was the bookrunner for the Regulation S offering.

Moving to Brazil, Grupo Friboi (B1/B+) reopened its 9 3/8% bonds due 2011 to add $75 million.

The retap priced at 100½ to yield 9.248%.

With the addition, the total size of the issue is now $275 million.

JP Morgan and ING were bookrunners for the Regulation S transaction.

Heading to the Philippines, Metropolitan Bank and Trust Co. (Metrobank) placed a $125 million issue of tier 1 perpetual non-cumulative fixed-rate/floating-rate notes (B2) at par for a yield to call of 9%.

UBS had the books for the Regulation S registered issue.

And South Africa's Savcio Holdings priced an offering of €125 million in seven-year notes at par to yield 8% via Barclays Capital.

EM flat to higher

Emerging market debt was steady to a little better Wednesday, although the market traded with a stronger tone than the previous session, according to market sources.

"There really hasn't been any notorious changes," remarked Enrique Alvarez, Latin America debt strategist for research firm IDEAglobal.

At the start of Wednesday's session, the Brazilian market opened slightly tighter at two basis points better, according to a source, who added that locals were banking on the completion of the tax exemption deal, which in turn is propping up local sentiment.

But another source said Brazilian and Argentinean bonds tracked U.S. equities, adding that locals were defending their long positions.

During the session, the Brazil bond due 2040 gained 0.10 to 128.45 bid, 129.55 offered. The Argentina discount bond due 2033 added 0.40 to 93.25 bid, 94.25 offered.

Elsewhere, Alvarez noted that Mexico and Chile's pullback was in line with the sell-off in U.S. Treasuries.

During the session, the Chile bond due 2013 slipped 0.16 to 101.597 bid, 102.004 offered. The Mexico bond due 2026 shed 0.25 to 161½ bid, 162 offered.

Furthermore, oil producers trailed as oil prices dipped for the third straight session.

"Venezuela has been the underperformer on the day. It's more than anything that the crude market is catching up to it and there's some liquidation going on there," said Alvarez.

At session's end, the Venezuelan bond due 2027 was down 0.50 to 124.75 bid, 125.25 offered.

Meanwhile the market source said there was local selling in Venezuela and Argentina while Brazilian corporates, Jamaica and Colombia saw buyers.

Ecuador higher

In other news, Ecuador's bonds moved higher after having been dragged down the previous session on news that state-run Petroecuador had suspended activity after violent protests stopped oil flows. The oil company has since resumed pumping of one of its two main oil pipelines

"It's had a little bit of a bounce...which has to do more with the high-yield surge more than anything," observed Alvarez.

At the end of the trading day, the Ecuador bond due 2030 was up 0.65 to 98 bid, 99 offered.

"The credit, alongside with Argentina, is the one that sits the most outside of averages in terms of returns," he said.

On the domestic side, Ecuador is proposing that there be a recalculation of its participation should be in exploration that foreign companies carried out between 2000 and 2005.

"That would be a positive for finances but it's sending the wrong message to the oil community," noted Alvarez.

"The price has not reflected that but I think that's the latest thing you're seeing on the domestic front," he observed.

Philippines correction

In other news, Philippine bonds are seeing a correction after rallying over the last week, according to a source.

Furthermore, reports that Moody's Investors Service may not alter the sovereign's ratings added to investor angst as dealers looked to unload their position on the Street earlier in the session.

Prices were down about 3/8 of a point on the long end while the belly to intermediate part of the curve lost around 1/8 to ¼ of a point.

But money accounts were looking to add paper on the dips, given that the fundamental story is still strong, noted the source.

By mid-afternoon, players seemed at ease with trading levels, but there was still some consolidation.

During the session, the Philippine bond due 2025 lost 0.75 to 127.37 bid, 127.75 offered.

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