Emerging market debt firmer with U.S. equities; Russia' Evraz sets guidance for 10-year notes

By Reshmi Basu

New York, Oct. 31 - Emerging market debt was firmer Monday as U.S. equities closed higher. Meanwhile U.S. Treasuries saw a stable trading session, a day ahead of the Federal Open Market Committee's meeting.

In the primary market, Russian steel company Evraz Group SA set initial price guidance for a dollar-denominated offering of 10-year fixed-rate notes (B2/B+/B) at mid-swaps plus a spread of low- to mid-300 basis points.

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

EM higher on equities

Emerging market debt was yanked higher by stronger equities during Monday's session, according to market sources.

Both U.S. stocks and their domestics counterparts in emerging markets edged higher, helping the debt market move up.

During the session, the Dow Jones Industrial Average Index increased by 37.3 points to 10,440.07.

And while emerging markets primarily tracked the equities market, the lack of volatility in the Treasury market helped prop up overall sentiment. At the close of the session, the yield on the 10-year note stood at 4.56% down from 4.58% on Friday.

In general, spreads for emerging market credits narrowed.

But flows were not outstanding, noted a source, adding that this was a follow-through from the better buying seen during Friday's session.

Argentina moves higher

In particular, Argentina was an outperformer in response to comments made by the country's finance minister Roberto Lavagna, according to Enrique Alvarez, Latin America debt strategist for research firm IDEAglobal.

Lavagna said that the country would enact an escrow account to "drain excess government revenue" in order to ease inflationary pressure, remarked Alvarez.

The Argentina bond due 2012 was up 0.68 to 89.714 bid. Spreads for the country's component of the JP Morgan EMBI+ Index narrowed by 17 points compared to Treasuries.

Elsewhere, Brazil's component of the EMBI+ Index was tighter by seven basis points to 357 basis points more than Treasuries. The Brazilian bond due 2040 gained 0.65 to 120.30 bid.

Venezuela's portion of the index was seven to 10 points tighter. The Venezuela bond due 2027 added three-quarters of a point to 116½ bid.

The asset class saw "a good day," remarked a sellside source, but warned that this week would be a volatile one, given the spate of economic data coming out of the United States.

"People are going to be looking at the numbers. This is a pretty heavy week," he noted.

Tuesday and Thursday will see the release of Institute for Supply Management data and non-manufacturing ISM data, followed by non-farm payroll numbers on Friday.

But first up, the busy data week will be punctuated by the Tuesday's anticipated decision by the Fed to raise rates by 25 basis points for the 12th straight time.

Investors will be looking to see if there are any changes in the Fed language about the direction of monetary policy.

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