Emerging market debt higher ahead of Fed Chief's testimony; Kexim taps euro-market

By Reshmi Basu and Paul Deckelman

New York, Feb. 13 - Emerging market debt posted gains Tuesday, benefiting from firmer U.S. stocks as well as rising crude oil prices.

Meanwhile in the primary market, the Export-Import Bank of Korea (Kexim) sold a €750 million offering of 10-year global notes (Aa3/A/A+) at 99.898 to yield a spread of mid-swaps plus 30 basis points.

The deal came at the tight end of price guidance, which was set in the range of 30 to 33 basis points more than mid-swaps.

Citigroup, DePfa Bank plc, Deutsche Bank, Merrill Lynch & Co., and UBS Investment Bank were joint lead managers for the issuance of Securities and Exchange Commission-registered notes.

In other pipeline news, ICICI Bank UK plc has set price guidance on its $300 million to $500 million offering of five-year senior unsecured notes in the area of Libor plus 65 basis points.

Barclays Capital and Deutsche Bank are lead managers for the Regulation S issue.

The issuer is a unit of Mumbai, India-based ICICI Bank Ltd.

Pricing is expected to take place later this week.

Waiting for Bernanke

Emerging market debt posted gains Tuesday on the back of firmer equities and a rise in oil prices, as trading volumes remained thin on the eve of Fed Chief's Ben Bernanke's congressional testimony.

Extending the trading doldrums from Monday, the Asian session opened softer Tuesday as most credits remained range-bound as they traded in sympathy with the region's weaker stock performances.

That lackluster sentiment spilled into the London and New York session, but by mid-morning, the market retraced losses as the JP Morgan EMBI Global index rose 0.13% while spreads narrowed two basis points versus U.S. Treasuries, remarked a market source.

Argentina, Venezuela outperform

Meanwhile Argentina and Venezuela outperformed the market, as higher crude oil prices bolstered the latter's debt.

Venezuela also found support on news on the nationalization front.

The government agreed to purchase Verizon Communications Inc.'s 28.5% stake in the country's biggest phone company CanTV for $572 million. That decision follows Venezuela's agreement to pay $739 million for AES Corp.'s 82% stake in CA Electricidad de Caracas.

During the session, the Venezuelan bond due 2027 added 1 point to 124.50 bid, 124.75 offered.

Elsewhere, Argentina reversed its recent losing streak as it saw a bounce back on position re-accommodation, according to Enrique Alvarez, Latin American debt strategist for think tank IDEAglobal.

In trading, the Argentine bond discount bond due 2033 gained 1.15 to 113.65 bid, 114 offered. At the close the session, the country's portion of the JP Morgan EMBI Global index rose 1.3% while spreads narrowed by 10 basis points.

Colombia, Peru up on headlines

In other developments, Colombia also posted a positive session on news that the country would buy back $500 million in domestic and external debt this year.

In trading, the Colombian bond due 2033 rose 0.35 to 142.50 bid, 143.50 offered.

Peru also rallied as the country announced that it would pay back some of its Paris Club debt, noted a source.

Latin America mostly quiet

Overall, activity seemed quiet in the Latin market, where Ecuador's bonds made their move on Monday after officials said Quito would make the $135 million coupon payment on its 10% notes due 2030 - but said that the payment would not be made on the scheduled due date, Thursday, but rather during the automatic 30-day grace period in the bonds' indenture.

Despite the government claims that it does not have the money to make the payment Thursday, many observers believe that the oil-rich country's finances are okay, and think it is delaying the payment as a political gesture by new president Rafael Correa to play to his left-wing base.

During the election campaign last year, Correa called the foreign debt incurred by his predecessors "corrupt" and "illegal," and scared bondholders with talk of a forced restructuring, similar to what Argentina did when it defaulted on about $100 billion of debt in 2001-2002.

Press reports in Latin America Tuesday meantime said that Venezuela - flush with oil revenues - will spend $2 billion to buy Argentinean bonds, both as an economic investment and a show of support by president Hugo Chavez for his fellow leftist leader in Buenos Aires, Nestor Kirchner.

The deal is expected to be finalized next week. Over the past two years, Venezuela has bought over $3.7 billion of Argentine bonds.

Furthermore, low trading volatility helped insulate Ecuador from Tuesday's headlines, noted Alvarez.

Ecuador's congress backed president Correa's plan for a referendum that would allow voters to decide whether or not to rewrite the sovereign's constitution.

"The overall level of movement has really slacked off," said Alvarez.

"We're at the highs. We can't go through the highs but we've got nowhere else to go because the fundamentals and technicals aren't moving around that much," he added.

He also explained that the market "looks exhausted, which could be the equivalent to overbought."

"With the exception of Ecuador and Venezuela over the course of the last week, you've had a pretty sustained but boring market," he observed.

Asian trading winding down

During the New York session, a trader in Asian debt said he saw no secondary market dealings in Export-Import Bank of Korea's new 10-year euro-denominated notes.

"It didn't really trade."

He noted that the bonds priced fairly tightly, "bang on the secondary curve. There's rarely a lot of juice in their deals, so it's really no better than fair, and I don't imagine it will trade a great deal."

Overall, the trader said that "it definitely feels like the wind-down to the [Chinese] Lunar New Year holidays has started" - The Year of the Pig begins on Sunday - "and there hasn't been a great deal of volume, either in the street or with clients."

Generally, he said, the tone of the market remains "reasonably firm."

CDS spreads, he added, "are pushing back toward the tights. The tone did deteriorate a bit toward the latter end of last week, and Monday, but spreads have snapped straight back today."

The market's overall story, he reiterated "is still one of a very, very firm tone.

"Clients continue to be better buyers on any form of weakness, so you do get these mini back-ups in spreads and then you continue to see clients coming in and buying on the backup."

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