Investors stay cautious on U.S. economic haziness; Pemex sells notes; PGNiG, Hyundai on tap

By Christine Van Dusen

Atlanta, Sept. 21 - Issuers and investors remained on the sidelines Tuesday after the Federal Open Market Committee indicated that rates would remain low, no new bond-buying program would be instituted and measures would be taken to support the economy if necessary.

In response, yields on 10-year Treasuries fell and the market remained mostly uncertain about how to proceed.

"The market's a little softer overall," said Enrique Alvarez, debt strategist with thinktank IDEAglobal. "I think we're in the digestive phase right now, and most of the focus is placed on trying to discern what exactly the implications will be from the latest FOMC communiqué."

In the near term, the market reacted by "lightening up," he said. "It may have been sort of skewed before the communiqué toward lower rates overall, perhaps promoted by a quantitative easing announcement, but since there was none, the market is overall lightening up."

Volumes for the day were "very light," a market source said. "There's not a lot of volatility."

Argentina spent the day "pulling back a little bit," he said.

Colombia, Mexico, Panama and Peru, meanwhile, were all "lower in price terms and wider in spread terms by a good 15 basis points. On the price side they're off $1 to $2."

But Venezuela saw some "upside," he said. "It's in anticipation of national assembly elections this weekend," Alvarez said. "There's positioning for a smoother political outlook."

Range-trade environment continues

Against this U.S. and global backdrop, emerging market assets "present a much more positive growth and public financial story than do most industrialized countries," according to a new quarterly report from Barclays Capital Emerging Markets Research.

And though the recent range-trading environment is expected to continue for global risk markets, not all EM assets will continue to trade sideways.

"On the contrary, we have reasonably strong directional views in a number of emerging asset markets," the report said. "But it does mean that, for some time to come, emerging asset markets are unlikely to receive the lift they had been getting from the post-crisis updraft in global markets."

Overall, the evidence for EM outperformance looks "a bit stronger" now than it did three months ago. "We expect that the investor flows into emerging markets that have been attracted to this economic outperformance will continue in the months to come," the report said.

Given all of this, Venezuela's spreads are expected to compress as much as 150 bps and Ukraine is forecast to see spreads compress about 60 bps. The authors of the report also favor Argentina, Turkey, Panama and Lithuania over Russia.

Pemex prices notes

Another sovereign was on the market's mind Tuesday: Costa Rica, which is embracing its new investment-grade credit rating and considering an issue of bonds.

"That looks pretty good," a source said. "That should do relatively well. It's an illiquid credit in the exotic bin. With the investment-grade rating, it should do absolutely fine."

Also from Latin America, Mexico-based petroleum company Petroleos Mexicanos SAB de CV (Pemex) on Tuesday priced $750 million 6 5/8% perpetual notes at par to yield 6 5/8%, a market source said.

Citigroup and HSBC were the bookrunners for the Rule 144A and Regulation S transaction, which was talked to yield at the 6 7/8% area. The notes are non-callable for five years.

And Santiago-based lender Banco de Chile is planning a dollar-denominated issue of notes that could price before the end of the year, a market source said.

Another Chilean bank, BancoEstado SA Corredores de Bolsa, also plans to issue dollar-denominated notes sometime before the end of the year.

PGNiG, Hyundai plan deals

Tuesday also saw Poland-based natural gas company Polskie Gornictwo Naftowe i Gazownictwo (PGNiG) mandate BNP Paribas, Societe Generale and Unicredit for a euro-denominated bond offering totaling about €1.2 billion, a market source said.

The deal is expected to price by the end of the year.

And Korea-based auto manufacturer Hyundai Motor Co. is planning a $500 million bond offering via Citigroup, a market source said.

Numerous other deals still sit in the pipeline. Pricing soon, market sources say, is Mexico-based phosphate fertilizer producer Grupo Fertinal's planed $200 million five-year notes via UBS, which ends its roadshow this week.

Also coming soon, a source said, is Sri Lanka's $1 billion issue of 10-year notes from HSBC, RBS and Bank of America Merrill Lynch.

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