Emerging market debt dips on profit taking; Latin American corporates sell $790 million in new deals

By Reshmi Basu and Paul A. Harris

New York, Dec. 15 - Emerging market debt nudged lower Thursday as investors took profits from their recent gains during another illiquid session.

In the primary market, Latin American corporates priced $790 million in new paper.

Brazil's Ultrapar Participaçoes SA sold a $250 million offering of 10-year senior unsecured notes (/BB+ expected) at 98¾ to yield 7.429% via Morgan Stanley and Banco Santander.

In secondary trading, the issue moved higher to 99 bid, 99¼ offered.

Also out of Brazil, Banco BMG SA sold $300 million of senior unsecured notes due Jan. 2016 (Ba3/B+) at 98.045 to yield 9½%.

Morgan Stanley was the bookrunner for the Rule 144A/Regulation S transaction.

Also from South America, Argentina's Telecom Personal SA sold an upsized offering of $240 million in five-year bonds (/B-/B-) at 99.51 to yield 9 3/8%.

JP Morgan was the bookrunner for the Rule 144A/Regulation S deal. Deutsche Bank was co-manager.

EM flows halt four-week losing streak

The most recent week saw cash returning to the asset class after four straight weeks of capital flight.

Dedicated emerging market debt funds saw $65 million of inflows for the week ending Dec. 14, according to EmergingPortfolio.com Fund Research. In the previous four weeks, the market saw $317 million leave.

EM down on profit taking

After two days of gains, on Thursday investors took the opportunity to bank profits.

In the previous two sessions, emerging markets saw high returns on follow-through from Tuesday's Federal Reserve decision to remove "accommodative" from its statement. Wednesday saw more support on the back of a Moody's upgrade for Turkey. Among the gainers, the Brazil 2040 pierced a record high of 127½ bid, before closing a quarter point lower.

But by the end of Thursday's trading, the Brazil bond due 2040 had shed 0.30 to 127 bid, 127.15 offered. Meanwhile the Mexico bond due 2026 slipped half a point to 161 bid, 161½ offered. The Venezuela bond due 2027 lost 0.35 to 116.90 bid, 117.40 offered.

"I think there's a little bit of profit taking all over the place," said Enrique Alvarez, Latin America debt strategist for IDEAglobal.

He added that cashing out was seen throughout Brazil's financial markets from the Bovespa to the currency market.

But now that this week's two important events, Tuesday's Fed meeting and Thursday's release of U.S. consumer prices data, have happened, the market is expected to stay in these tight ranges unless an unexpected event shakes things up, replied Alvarez.

S&P surprises with Russia upgrade

In another development, Standard & Poor's surprised the market by lifting Russia's long-term foreign currency sovereign credit rating to BBB from BBB-, citing improvements in the government's financial strength and debt management strategy.

On the announcement, the country's bonds jumped immediately, but gains were erased towards the end of the session. By the end of the session, the Russia bond due 2030 was down 0.39 to 111½ bid, 112 offered.

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