Emerging market debt holds up, despite falling U.S. Treasuries; EM sees $1.625 billion of new paper

By Reshmi Basu and Paul A. Harris

New York, Nov. 9 - Emerging market debt held up relatively well despite slumping U.S. Treasuries Wednesday.

In the primary market, one sovereign and four corporates issued $1.625 billion of new paper, a burst of activity that came on the heels of Tuesday's busy session, which saw $900 million in new issues.

On Wednesday, Brazil reopened its 7 7/8% global bonds due 2015 to add $500 million via Citigroup and HSBC.

The retap priced at 100.702 to yield 7.765% at a spread of Treasuries plus 312 basis points.

This is the second time that Brazil has reopened its 2015 bonds, bringing the total size of the issue to $2.1 billion. In the secondary, the bond was quoted at 101.30 bid, 101½ offered, down 0.30.

Elsewhere in Argentina, Banco Hipotecario SA sold $150 million of five-year senior unsecured bonds (/B-) at 99.035 to yield 10%.

Deutsche Bank was the bookrunner. Deutsche Bank and Citigroup were joint lead managers for the Regulation S transaction.

From Mexico, Cablemas SA de CV sold an upsized offering of $175 million in 10-year senior notes at par to yield 9 3/8%.

The sale went well, according to an informed source, adding that the issue rose 75 cents in the secondary market and was 2½ times oversubscribed.

Credit Suisse First Boston was the bookrunner for the Rule 144A/Regulation S transaction. UBS Investment Bank was the co-manager.

Out of Korea, Korea East West Power Co. Ltd. priced a $300 million offering of seven-year bonds (A2/A-/A-) at 98.729 to yield 95 basis points more than Treasuries.

Barclays Capital, Credit Suisse First Boston and Lehman Brothers acted as joint bookrunners for the Rule 144A/Regulation S deal.

And from India, ICICI Bank Ltd. (Baa3/BB+) priced an upsized offering of $500 million in five-year senior fixed rate notes at 99.572 to yield 130 basis points more than Treasuries via Deutsche Bank and Merrill Lynch.

EM holds on

During the session, emerging market debt held up, despite weaker Treasuries, as Brazil helped give support to the market, said sources.

U.S. governments slumped Wednesday in response to the lackluster sale of new five-year notes by the Treasury. In the second installment of the government's quarterly refunding, $13 billion in new five-year notes priced at 4.525%, the highest yield since May 2002. But participation by indirect bidders, which includes foreign central banks, was scant. That helped put pressure on Treasury yields.

In late trading, the yield on the 10-year note stood at 4.63%, up from Tuesday's 4.56%.

"[EM] prices are actually holding up somewhat okay, considering the U.S. bond market's back up," remarked a trader, adding that trading became quieter in the afternoon.

"Prices are somewhere near last night's type levels," he added.

During the session, the Brazil bond due 2040 added 0.05 to 120.80 bid, 120.95 bid. The Russia bond due 2030 lost half a point to 110.313 bid, 110½ bid. The Venezuela bond due 2027 slipped 0.85 to 117 bid, 117.15 offered.

The market's resilience comes from the return of investors, who have been missing for a few weeks, observed a sellside source.

The asset class is seeing more liquidity and more of a two-way flow than it has had in past weeks, he added.

Additionally, the market is feeding into the "year-end rally" psychology, he noted. Historical trends show that the last two months of the year tend to see the biggest rally of the year.

"So far this week, spreads and prices have been coming up pretty well. If we continue to see supply, it's going to a positive thing for the market," he noted.

Meanwhile market sources said that new supply has not hurt the market and those issues have traded well in the secondary.

"It's been a good impact," noted the sellside source.

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