New issues from Egypt, Neo-China; high-beta Asia, Latin America outperform; EMBI seen 6 bps tighter

By Paul Deckelman and Aaron Hochman-Zimmerman

New York, July 12 - Emerging markets participants once again took their cue from high-flying U.S. equities as they pushed to record peaks on the bellwether Dow Jones Industrial Average and other indexes, a surge seen as a sign that the financial markets' recent flight to safety mode is over and investors have regained their appetite for risk.

With U.S. Treasuries meantime falling back and the yields on those bonds rising, emerging market spreads tightened versus Treasuries, yet another indicator of greater risk tolerance.

Higher-volatility credits like Venezuela, Argentina and Ecuador, which had led the market down when jitters about the U.S. subprime lending crisis and other negatives roiled the EM market, were leading it back up, posting the largest gains.

However while Brazilian yields were tighter, the dollar price of its bonds was seen pretty much unchanged.

Asian issues were seen better, continuing the momentum which had been seen late in Wednesday's trading day in New York.

Five-year Philippine CDS contracts came in about 3 basis points.

'Pretty solid' or 'thin ice'

In the primary market, the Arab Republic of Egypt and Neo-China Group (Holding) Ltd. managed to price deals in a market that one source characterized as overloaded but stable.

"There are too many issues and people are fed up," a market source said, adding that EM looks better right now, but is on thin ice.

"It's so shaky, nobody knows when it will come down, but it will."

However an emerging markets analyst took a different view.

The market is "pretty solid," and "really did fine in the latest hiccup, especially when compared to the CDX and iTraxx.

"We're still not out of the woods on subprime," the analyst said, and added: "EM's been able to shrug off this subprime stuff, but if it really spills into a serious credit crunch and/or a much more serious housing slump [it] could be trouble in the end for EM."

Meanwhile a buyside source said that having so many deals in the pipeline is "not a good sign.

"It's usually an indicator to step back and wait," the buysider said.

Neo-China, Egypt price deals

Terms emerged Thursday on Egypt's 6 billion Egyptian pound 8 7/8% five-year sovereign bonds (Ba1/BB+/BB+) which priced at 99.504 to yield 9%.

Citigroup and JP Morgan had the books.

The deal will settle in dollars.

Meanwhile, Neo-China priced a $400 million issue of 9½% seven-year senior guaranteed fixed-rate bonds (B1/B+) at 98.50 to yield 9¾%.

The yield was printed on top of price talk that had been increased from 9½% area.

Bank of China International and Deutsche Bank brought the deal to market.

The notes carry five-year detachable warrants at the rate of 66,000 per $100,000. The warrant strike price is HK$1.68.

Another sovereign comes in

Following sovereigns from Egypt, Bogota and Azerbaijan earlier this week The Emirate of Abu Dhabi selected Citigroup and Deutsche Bank to act as bookrunners for its upcoming inaugural dollar-dominated issuance (Aa2/AA /AA).

Investor meetings for the deal will be held during the week of July 15.

New local-currency corporate

Cyrela Brazil Realty SA announced it will sell 500 million reais of 10-year notes (BB).

Credit Suisse is the bookrunner and Deutsche Bank is the lead manager for the deal.

A roadshow will be held in Singapore on July 16, Honk Kong on July 17, London and Zurich on July 18, and in the United States from July 19 to July 23.

Offerings from banks

Bulgaria's First Investment Bank set price talk in the Libor plus 250 basis points area for its €100 million offering of 10-year notes (Ba1/BB).

Bahrain's Gulf Financial House set a size of $1 billion for its pending issue of five-year floating-rate notes (BBB-).

Talk has already been set in the area of Libor plus 125 basis points.

Dresdner Kleinwort and HSBC will bring the deal to market.

Meanwhile India's Bank of Maharashtra got in the market with a deal for Rs. 2 billion of 15-year unsecured non-convertible redeemable subordinated upper tier II bonds in the nature of promissory notes.

The notes will carry a coupon rate of 10.35% for the first 10 years. They feature a step up to 10.85% if they are not called at that point.

The subscription period will run from Friday to July 23. The date of allotment is July 25.

But Bahrain's Ithmaar Bank withdrew its benchmark-sized dollar-dominated five-year sukuk offering (BBB-).

UBS had the books.

A statement from the bank cited "continued volatile conditions in the international bond markets," as the reason for the putting the sale on hold.

JSCB Bank of Moscow also pulled its euro-denominated five-year senior unsecured notes offer (A3//BBB) which had come to market via Deutsche Bank and JP Morgan.

High-beta Asia, Latin America outperform

The yield on U.S. Treasury 10-year bonds was up 4 basis points late in the session at 5.13%. With emerging bonds trading better, that caused EM spreads versus Treasuries to tighten on average by about 6 bps to 164 bps on the widely followed EMBI+ index maintained by JP Morgan & Co.

"Everything was following the massive Dow move ahead," said a New York-based trader in Latin American issues. "Everything in general was tighter across the board."

He observed that in terms of dollar prices it was "not that big a move. But the spreads were certainly tighter, with Treasuries moving lower."

He saw Venezuela's benchmark 9¼% bonds due 2027 some 20 to 21 bps tighter, with their price up nearly 1¾ points on the day.

He saw Argentine debt about 15 bps tighter on the day, and up about 1½ points.

At another desk, the widely traded Venezuelan issue was seen up nearly 2 points on the session to around the 110.25 mark, its highest level so far this summer, while the bonds' yield was pegged at 8.20%, a tightening of nearly 20 bps on the day.

Argentina's spread versus Treasuries meantime tightened 16 bps on the day, to an average level of just over 300 bps.

Ecuador lags

While Ecuador's debt is usually lumped in with "Vennie" and Argentina - all of them considered risky, volatile credits often experiencing wide price and yield swings on homefront political developments - the trader suggested that "I don't think there would be too many buyers of Ecuador right now," presumably owing to investor skittishness after the country's leftist populist president, Rafael Correa, once again recently raised the specter that his nation might default on some or perhaps even all of its foreign debt.

Another source saw Quito's global 2012 notes up ½ point on the day, while Venezuela was a full 1½ points higher.

Among the more stable, less volatile issues, the day's gains were less pronounced. The trader saw Brazilian bonds about 4 bps tighter on the day and unchanged on a dollar basis.

A market source was quoting that nation's 11% bonds due 2040, considered the most liquid and actively traded emerging issue, at 131.063, actually off slightly price-wise, although better on a spread basis.

Mexico up with peso

Elsewhere in Latin American trading Mexico's peso-denominated local government bonds were seen attracting buyers, helped by the stronger peso Thursday. The yield on the country's 2023 bonds was off 2 bps to 7.70%.

In Asian dealings earlier in the day, bonds were seen having firmed on the back of Wednesday's gains in EM debt and U.S. equities.

The Philippine government benchmark bonds were up ½ point, with its 2031 bonds at 109.75 bid, 110.25 offered, and its 2032 paper quoted at 95.875 bid, 96.375 offered.

The five-year credit default swaps on the sovereign moved down about 3 bps on the day to 117-120 bps.

Among corporate issues, CITC Resources Holdings' 2014 bonds were quoted up ½ point Thursday at 97 bid, 97.5 offered, while spreads on ICICI Bank's 2022 bonds and Hutchison Whampoa 2033s were each seen having tightened about 6 bps on the session, to bid levels at 210 bps and 147 bps, respectively.

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