Emerging market debt down on risk aversion; Public Bank to sell dollar-denominated bonds

By Reshmi Basu and Paul A. Harris

New York, May 30 - Emerging market debt saw a heavy sell-off Tuesday on the back of global equity weakness.

In the primary market, Malaysia's Public Bank Bhd. announced it will begin a roadshow on Thursday for a dollar-denominated offering of tier 1 securities (Baa2/BBB).

Barclays Capital is the bookrunner for the Regulation S offering.

On Tuesday, the debt market clocked in another volatile session as core markets slid on dwindling consumer confidence in the United States and a surge in oil prices.

During the day, the Dow Jones Industrial Average index plummeted 184.15 points to 11,094 points while the Nasdaq index plunged 45.63 to 2,164.74 points.

U.S. Treasuries also fell on comments made by Chicago Federal Reserve president Michael Moskow, who told CNBC that inflation was at the upper end of the central bank's comfort level.

At session's end, the yield on the 10-year note stood at 5.08%, up from Friday's close of 5.05%.

And as global equity markets deteriorated Tuesday, so did emerging markets, in particular currencies. However, while the sell-off in local markets was more pronounced, external debt saw its fair share of sellers, noted market sources.

"The [EM] market is not immune to global volatility," said a trader, who added the long end of the curve saw most of the pressure.

During the session, the Brazilian bond due 2040 slid 1.45 to 122.10 bid, 122.15 offered while the bond due 2011 slipped 0.25 to 113.50 bid, 114.50 offered.

Furthermore the Brazilian real saw a volatile session, triggered by the central bank's $400 million intervention to ameliorate the currency's weakness. On Wednesday, the Copom is expected to cut the Selic rate by 50 basis points to 15.25%.

The Mexico peso also came under pressure as opinion polls showed a close presidential race.

The Mexican bond due 2010 lost 0.10 to 113 bid, 113.25 offered while the bond due 2026 gave up 0.50 to 147 bid, 149 offered.

And the Venezuelan bond due 2027 shed 1.50 to 120.20 bid, 120.75 offered.

One market source described the market's recent volatility as a technical sell-off triggered by position squaring.

Peru down on polls

Meanwhile Peruvian bonds were doused by the release of this weekend's opinion polls. Former president Alan Garcia's has a narrow lead over leftist Ollanta Humala in the presidential race. With no clear winner, Peruvian assets are expected to remain volatile ahead of the June 4 run-off.

During the session, the Peruvian bond due 2033 shed 2.25 to 111.20 bid, 111.75 offered.

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