Poland, South Africa waken slumbering primary market; Argentina widens on 'strike' news

By Paul A. Harris

St. Louis, Aug. 26 - Emerging markets debt traded unchanged to slightly weaker on Wednesday, market sources said.

The EMBI-Plus index was at 375 bps bid, heading toward the New York close, two basis points wider on the day, according to a market source.

Brazil's highly liquid 8¼% bonds that mature in 2034 were 5/8 point lower on the day at 123 7/8 bid, 124 5/8 offered, according to Enrique Alvarez, head of research, Latin America, for IDEAglobal.

Latin American bonds were a touch weaker on the day, Alvarez added.

Meanwhile the primary market sparked to life Wednesday with a pair of sovereign deals pricing in Europe, one from the Republic of South Africa, the other from Poland.

South Africa taps 2019 global bonds

The South Africa priced a $500 million add-on to its 6 7/8% senior fixed-rate global bonds due May 27, 2019 (Baa1/BBB+/BBB+) at 107.511 to yield 5.85% on Wednesday.

The yield came on top of the 5.85% yield talk. That yield talk had tightened by 10 bps from the original 5.95% yield talk.

Barclays Capital and JP Morgan were joint bookrunners.

The original $1.5 billion issue priced at 99.189 to yield 6.989% on May 19, 2009.

Wednesday's add on takes the total issue size to $2 billion.

The deal was a blowout, and allocations were severe, an asset manager from an emerging markets mutual fund told Prospect News on Wednesday afternoon.

Poland prices tight to talk

Meanwhile the Poland's ministry of finance priced an upsized CHF 750 million issue of 3% five-year bonds at a 138 bps spread to mid-swaps on Wednesday.

"The wide interest in this bond issue among investors enabled [Poland] to tighten the initially announced spread from 140 to 138 basis points over the CHF mid-swap rate," the ministry stated in its release

The deal was upsized from CHF 500 million, according to a market source.

Credit Suisse and UBS Investment Bank led the transaction which was priced off of the euro medium term notes program.

Hot iron

The one-day, two-deal disruption to an otherwise slumbering late summer primary market failed to surprise one investment banker who tracked Wednesday's deals.

"It is somewhat atypical for issuers to come late in August," conceded the banker, who was not involved in either of the deals.

"However it makes sense," the banker added.

"There is definitely still appetite. People are still around. Deals are getting done.

"So it makes sense to strike while the iron is hot."

Argentina widens on 'strike' news

Argentina's debt continued to rollercoaster through the secondary market on Wednesday.

Argentina, which tightened Monday on news that a debt exchange is underway to take out near-term maturity inflation-linked notes, widened on Tuesday due to profit taking, market sources said.

On Wednesday Argentine debt widened further, according to IDEAGlobal's Alvarez.

Argentina's dollar-denominated 8.28% discount bonds due in 2033 were down a point at 60¼ bid, 61½ offered, Alvarez said.

Argentina widened on news that farmers in that country will launch a seven-day strike to protest a presidential veto of legislation which would have provided tax relief to drought-stricken regions of the country, the strategist said.

"It serves to highlight the lack of resolution to the continuing aggravated situation between the government and the agricultural sector," Alvarez remarked.

"This time the government reversed its tax exemption proposal, and agriculture reacted by striking.

"It serves to dissipate some of the upside from the debt exchange."

On Monday, when news of the debt exchange was fresh, Argentina's 8.28% discount bonds were seen at 65 bid, 66½ offered, up approximately 6 points from 60 bid the previous week.

However on Tuesday those bonds fell almost 2 points to 62 bid, 63¼ offered, with sources chalking the move up to profit-taking.

Autumn looms

Looking beyond Argentina the entire Latin American sector was a touch weaker on Wednesday, IDEAGlobal's Alvarez said, heading into the New York close.

U.S. economic data continues to be the price-driver for Latin American debt, the strategist added.

"At this juncture, however, the market seems a little less willing to interpret every single data metric out of the U.S. as a medium-term positive," Alvarez cautioned.

"Doubts are becoming more pronounced, and confidence is wavering after a very long, steep advance."

What propels those doubts is the fact that September and October are typically a negative period for U.S. stock markets, the strategist explained.

"Since we're riding on the coattails of U.S. equities, people appear to have cooled, somewhat.

"You're not seeing a large amount of profit-taking, but people are taking a few chips off the table."

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