Emerging markets illiquid; Latin America credits weaker; primary awaits September supply

By Paul A. Harris

Portland, Ore., Aug. 26 - Emerging markets debt remained illiquid as the week came to a close, sources said.

The JPMorgan Emerging Markets Bond Index, EMBI Plus, traded at a spread of 338 basis points, in the middle of the New York afternoon, 1 bp wider on the session, according to a market source.

Brazil's benchmark 11% global bonds due 2040 were 137¼ bid, 137¾ offered, unchanged, according to Enrique Alvarez, head of research Latin America for Ideaglobal.

Treasuries sold off after Federal Reserve Bank chairman Ben Bernanke spoke from the annual Fed convention in Jackson Hole, Wyo., causing emerging markets bond spreads to move a little, Alvarez said.

The 10-year Treasury yield gapped up to 2.2% from 2.13% following the speech, then settled to 2.19%, Alvarez said.

Fed watchers and others in the financial markets had eagerly anticipated the Fed chairman's speech throughout the week, keen to know Bernanke's views on the health of the economy and possible further Fed fiscal intervention.

However Bernanke did not disclose much, Alvarez said.

"Mostly he deferred to the FOMC meeting late next month," said the strategist, referring to the late September meeting of the Federal Reserve's policy-making Federal Open Market Committee meeting.

LatAm softer

Latin America, in general, was a touch softer on Friday, with the Mexican peso easing relative to the dollar.

High-yield Latin American sovereigns Argentina and Venezuela lagged the market as usual, and the rest of the sector followed Brazil, Alvarez said.

Exactly one week has passed since Standard & Poor's downgraded Venezuelan long-term foreign and local currency sovereign ratings to B+ from BB-, in part citing political uncertainty related to the health and political plans of Venezuelan president Hugo Chavez, who has been undergoing treatments for colon cancer.

When the credit rating agencies look at the political aspects of sovereign debt, the long-term perspective becomes more challenging, and things become more complicated for investors, Alvarez remarked.

Venezuela's 9¼% global bonds due in 2027, which had been under pressure throughout the week, were 68 3/8 bid, 69¼ offered, essentially flat, Alvarez said.

Throughout most of the week the Venezuela 2027 bonds traded with a 68 handle, the strategist added.

Apart from the Latin American space, Hong Kong-based Hutchison Whampoa International Ltd.'s 7 5/8% notes due 2019 were 121 bid, up 1/8 point on the day, according to a market source in Europe.

Quiet in the primary

The primary market for emerging market debt remained quiet on Friday.

Looking ahead to the August-September crossover week, Argentina's Tarjeta Naranja SA plans to price a $100 million tap of its 9% senior notes due Feb. 1, 2017 (//B).

Bank of America Merrill Lynch and Deutsche Bank Securities Inc. are the bookrunners.

The original $200 million issue priced at par on Jan. 25, 2011.

Elsewhere Mexico (Baa1/BBB/BBB) is meeting with Japanese investors ahead of a possible Samurai bond offering.

The meetings were organized by Citigroup, Mitsubishi and Nomura.

Should a deal materialize it would be Mexico's second pass at the Samurai market in less than a year. Mexico priced a ¥150 billion issue of 1.51% notes on Oct. 28, 2010.

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