Latin America rallies as EM recovers some lost ground; Neo-China talks seven-year notes at 9½% area

By Paul Deckelman and Aaron Hochman-Zimmerman

New York, July 11 - Emerging market bonds stabilized and even recovered for the most part in trading Wednesday, the day after having mostly gotten slugged on the weakness which had been seen in the U.S. and other financial markets Tuesday due to jitters about the potential impact of continuing U.S. subprime lending problems.

Spreads between emerging bonds and U.S. Treasury issues tightened noticeably from Tuesday's bloated levels.

In Latin American trading, Argentina and Venezuela were seen leading the rebound, although Brazil's bonds were seen weaker.

Traders in Asian issues saw a downturn in MagnaChip Semiconductor Ltd.

Earlier, Philippines government bonds had declined on a combination of market weakness and on the results of that country's latest debt auction, which saw the yields at which Manila could sell the bonds pushed upward. Credit default swaps for both the Philippines and Indonesia got more expensive.

Emerging bonds seemed to take their cue more from stocks, which recovered after Tuesday's beating, while U.S. Treasuries declined, as the recent flight to quality diminished and investors recovered their appetite for more risk. The yield on the benchmark 10-year Treasury notes rose 6 basis points to 5.09%. Also pushing the government bonds lower and encouraging the risk takers were comments by the head of the Philadelphia Federal Reserve Bank to the effect that the current the housing slump is unlikely to derail economic growth.

The widely followed EMBI+ index compiled by JP Morgan & Co. saw its spread to Treasuries narrow by about 6 bps on the session to 168 bps, after having ballooned out about a dozen basis points Tuesday to about 175 bps - the recent peak level for the index, nearly 30 bps above the all-time tight spreads in the upper 140s seen in late May and early June, and not far below the swollen levels in the 190s to which the index had widened out after the Chinese stock market collapse in late February and early March.

"Treasuries were off a good bit today, and things [in our market] tightened up, and made up for yesterday's [Tuesday's] selloff and spread widening," a New York-based trader in Latin American debt said.

Latin America better

Among the Latin issues, Argentina's bonds - the biggest loser so far this year among emerging debt names, with a double-digit deficit - were a major gainer on Wednesday. The country's 8.28% dollar-denominated benchmark bonds due 2033 were quoted up ¾ point to finish at 96.5 bid, while its yield came in 7 bps to just under 8.60%.

Another mover was Venezuela - like Argentina a troubled credit which has been among the biggest losers so far this year.

The oil-rich nation's benchmark 9¼% bonds due 2027 were quoted Wednesday afternoon at 108.75 bid, up ¾ point on the session, while its yield tightened 7 bps to around the 8.35% mark.

However, Brazil's benchmark 11% bonds due 2040 - the most widely circulated EM issue - were seen off about 1/8 point to just over 131 bid.

MagnaChip lower

Among Asian issues, MagnaChip Semiconductor's bonds were seen lower, although there was no fresh news out on the Korean computer chip manufacturer.

A market source saw its 8% notes due 2014 down more than 2 points at 70.5 bid, while its 6 7/8% notes due 2011 were likewise better than 2 point losers at 82 bid.

More broadly in the Asian trading day, bonds slid badly as traders there picked up on the concerns seen in the U.S. and other financial markets on Tuesday over the potential impact of the continuing U.S. subprime lending shakeout.

The cost of Philippines five-year credit default swaps moved out to 123 basis points, about 3 bps wider than their New York close on Tuesday, but about 12 bps outside of where they had been in the local market a day earlier.

The underlying benchmark government bonds, meantime, were quoted down a point or more from where they had been Tuesday, at about the 109 level for the 2031 bonds and 95.25 bid on the 2032 bonds.

Besides the jitters carried over from Tuesday's trading in the United States, prices on Philippine sovereigns fell and their yields rose to the highest level in almost a year in the wake of Tuesday's auction of government debt, which saw Manila accept higher-than-anticipated yields for the bonds it was selling. The Philippine Treasury accepted bids carrying yields as high as 7.049% for new four-year bonds, pushing prices down and yields up all over the curve.

Outside of the Philippines, the Indonesian 5-year CDS contracts, which usually track their Philippine counterparts, were seen at 122 bps, also out considerably from their day-earlier levels.

The five-year CDS contracts linked to Pakistan's sovereign debt rose by 20 bps to 215 bps, after Standard & Poor's had revised its outlook on the country's ratings on Tuesday to stable from positive. The agency cited a political and security situation which it warned had "deteriorated markedly" in recent months, citing such incidents as the controversial ouster of the country's chief justice, the bloody Red Mosque siege in Islamabad and the latest assassination attempt against President pervez Musharraf. It also raised a red flag about the expansionary budget the government has proposed for the coming year.

In high-yield Asian corporates, Greentown China Holdings' 2013 bonds were seen down more than ½ point on the session to just under the 102 bid level. Among the high-grades, the spread on Hutchison Whampoa's 2033 benchmark bonds had widened out by about 7 bps to 153-149. India's ICICI Bank's 2022s were at 216 bps, versus 210 bps the previous day.

The primary market

In the primary market, meanwhile, two deals priced.

Russia's Transcapitalbank sold $100 million of 10-year subordinated lower tier II notes (B2) at a spread of five-year Treasuries plus 560 bps.

The issue was sold at par with a coupon and yield of 10.514%.

The deal came just slightly wide of the initial guidance, set at 10¼% to 10½%.

ABN Amro and Credit Suisse were the bookrunners.

Ukraine's Alfa Bank priced $150 million of three-year senior notes (Ba3) at par to yield 9¼%, also on top of price talk.

UBS had the books.

Sovereigns active

The Arab Republic of Egypt released talk of 8 7/8% to 9% for its upcoming sale of benchmark-sized five-year Egyptian pound-linked eurobonds (Ba1/BB+/BB+).

The bonds will settle in dollars.

Citigroup and JP Morgan are the bookrunners.

The deal wrapped up its roadshow Wednesday, and is expected to price Thursday.

"[This] may be interesting and attractive," an emerging market analyst said, provided that the pound sustains its current levels.

"Inflation seems to be on the high side," the analyst added, but conceded that the currency seems well supported.

The City of Bogota is on the road selling the Colombian peso equivalent of $300 million 21-year bonds (Ba1/BB+/BB+).

Citigroup and Deutsche Bank will take the books.

The bonds, payable in dollars, amortize in equal parts in 2026, 2027 and 2028.

The roadshow will visit London on July 12 and July 13, the U.S. west coast on July 16 and New York and Boston on July 17 and July 18.

"Colombia is booming," an emerging markets analyst said.

"It was always a well run city," the analyst added, referring to Bogota.

And the ministry of finance of the Republic of Azerbaijan (Ba1/BB+) has mandated Deutsche Bank AG London and Citigroup Global Markets Ltd. as joint lead managers for Azerbaijan's debut sovereign bond issue, according to a press release from the ministry.

The deal is scheduled for the September-October 2007 time frame.

Neo-China sets talk

Neo-China Group (Holdings) Ltd. released talk of the 9½% area for its benchmark-sized offering of seven-year guaranteed bonds (B1/B+) with detachable warrants.

The deal, which is being led by Deutsche Bank and Bank of China International, is expected to price before the end of the week.

Two banks talk, two jump in

Banco do Brasil talked 9½% to 9¾% for its benchmark-sized local-currency 10-year senior unsecured bonds (Baa3 expected).

The deal, beingt led by BB Securities and Merrill Lynch, is expected to price by the end of the week.

Elsewhere Ukraine's UkrSibbank set talk at 7¼% for its dollar-dominated three-year senior issue (Ba2/BB-).

HSBC and BNP Paribas have the books.

Meanwhile, two Asian banks added new deals to the calendar.

Korea Exchange Bank came out with plans for a dollar-dominated five-year floating-rate issue (A2/BBB+).

Calyon, HSBC, Merrill Lynch and Morgan Stanley have the books.

The new bonds will be released as part of the bank's $4 billion euro-MTN program.

And India's Punjab National Bank announced its plans to sell Rs. 2.5 billion tier I perpetual bonds.

The subscription period will run from Thursday to July 27.

First Gulf bows out

As the two Asian deals were on their way in, UAE's First Gulf Bank announced the postponement of its five-year floating-rate notes offer (A2/A).

Citigroup, Deutsche Bank and Standard Chartered had been mandated as the bookrunners.

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