Emerging market debt widens on U.S. job numbers; two more corporates hit the road

By Reshmi Basu, Paul Deckelman, and Paul A Harris

New York. Jan. 5 - Emerging market debt churned out a losing session Friday, as stronger than expected jobs numbers triggered a U.S. Treasury sell-off.

In the primary market, roadshow announcements surfaced from both exotic and run-of-the-mill corporate names.

Out of Asia, rare issuer Trade and Development Bank of Mongolia (Ba2) will start a roadshow for a $150 million offering of debut senior bonds on Monday,

The roadshow will run from Jan. 8 through Jan. 12, stopping in Singapore, Manila, Hong Kong and London.

ING is the bookrunner for the Regulation S offering, which will come off the issuer's medium-term note program.

Pricing is expected to take place following the completion of the roadshow.

Turning to Brazil, repeat bond seller Cosan Finance Ltd., a subsidiary of Brazilian sugar producer, Cosan SA Industria e Commercio, will begin a roadshow on Wednesday in Hong Kong for its $300 million offering of 10-year senior unsecured notes (Ba2/BB).

Roadshow stops are scheduled to take place on Jan. 11 in Singapore, Jan. 12 in Switzerland, Jan. 15 in London, and Jan. 16-18 in the United States.

Morgan Stanley and Credit Suisse are joint bookrunners for the notes which are being marketed via Rule 144A and Regulation S. Deutsche Bank Securities is the joint lead manager.

Meanwhile a source noted that the new supply weighed on the company's corporate curve.

In trading, the Cosan 9% bond due 2009 decreased 0.32 to 105.94 bid, 106.84 offered.

EM doused by robust job data

Emerging market debt closed out the week on a softer note, as stronger than expected job numbers triggered a sell-off in high beta credits such as Argentina and Ecuador. Lower commodity prices served as another strike against the asset class.

Across the spectrum, sovereigns saw red as the robust jobs report led many investors to scale back their hopes of a goldilocks scenario, noted a market source.

In recent months, the asset class has shown resilience as investors hedged their bets for a perfect combination of growth with low inflation.

But as the Labor Department reported that 167,000 new jobs were added to the U.S. economy, U.S. Treasuries sold off on the decreased probability of a Fed rate cut.

In the absence of any country-specific drivers, emerging market debt floundered as U.S. Treasuries saw the yield on the 10-year note jump to 4.64%,

In trading, the bellwether Brazilian bond due 2040 gave up 0.25 to 132.80 bid, 132.90 offered.

Meanwhile Argentina turned in the worst performance of the day on increased risk aversion.

The Argentine discount bond due 2033 lost 1.25 to 108.75 bid, 109.50 offered.

Ecuador rally halts

Elsewhere, Ecuador was unable to extend a two day rally.

On Wednesday, the Andean nation saw its external debt rise higher on comments made by incoming finance minister Ricardo Patino, who alluded to the possibility that the country would not seek an outright Argentina-style default but instead hold a tender offer. Those gains carried into Thursday but Friday's job numbers snapped the rally.

In the secondary, the Ecuadorian bond due 2030 gave up 0.50 to 77 bid, 78 offered.

Turning to Venezuela, lower crude oil prices continued to pressure the country for the second straight session.

Since Tuesday, oil prices have fallen more than 10%, triggered by mild weather in the Northeast United States as well as increasing U.S. fuel inventories.

Declining oil prices have chipped away at the world's fourth largest oil producer. In trading, Venezuela's bond due 2027 fell 1.25 to 126 bid, 126.20 offered.

Lower commodity prices also put the hurt on South Africa.

During the session, the South African bond due 2017 slipped 0.38 to 121.875 bid, 122.375 offered.

Asia tightens

A trader in Asian issues said that overall, "it was a fairly quiet day, despite the massive volatility seen in the Treasury market."

He said that clients for the most part "were quiet and didn't really react to the sell-off in Treasuries.

"The beginning of the year saw a lot of new money come in, and we were very active for the first couple of days of the week. It was a little surprising to see things quieting down today, despite the volatility."

Overall, he said, spreads in Asia "tightened a couple of basis points across the board, as our market sold off less than Treasuries."

He said nothing really stood out, with Philippine and Indonesian bonds "a couple of basis points tighter across the curve."

High-grade issues were "very, very quiet," even the big names like Hutchison Whampoa and ICICI.

MagnaChip slips on loan trouble

In other corporate secondary news, a trader noted a slide in South Korea's MagnaChip Semiconductor Ltd. bonds because the company had to seek waivers on loan covenants from its banks. It was also pressured by the broad weakness in chip stocks Friday due to Motorola Inc.'s warning that earnings would likely miss its fourth-quarter estimates.

MagnaChip bonds were said to have lost 3 points with the 8% issue falling to 63 bid, 64 offered and the 6 7/8% issue dropping to 82 bid, 83 offered.

In other developments, a trader watching Latin American issues observed that Brazilian beef processor JBS SA had launched a consent solicitation to the holders of its 9 3/8% and 10 ½% notes, in connection with the planned spin off of its hygiene and cleaning products unit, adding an off-shore co-issuer, which will be guaranteeing the bonds.

He stressed that the action is only a consent solicitation, and the company is not tendering for the bonds, and said that there was no bond price movement as a result of the news.

Petrobras lower

He also noted some movement on the bonds of Petrobras, which plans to offer to exchange new 6 1/8% notes due 2016 or cash for five series of existing notes totaling $500 million.

However, he noted that with Treasuries selling off on economic data, "spreads have moved so much that it's very difficult to compare price to price."

He saw the 2016 bonds move from 101.35 before the announcement to 100.50, while the 2014 bonds moved down to 110.75 from 111.25 previously.

He said that the '16s were trading at a spread to Treasuries of 137 basis points, and were going to be tendered for at 140 bps over, while the '14s were trading at a 130 bps spread and were to be tendered for at 120 bps.

He held out the prospect that the differences between those levels will tighten up, adding that "the spreads shouldn't be very far away from where the tender will be happening."

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.