Emerging markets follows U.S. headlines; prices bounce back late in big volume; primary sees $1.6 billion

By Aaron Hochman-Zimmerman

New York, Oct. 24 - Emerging markets saw a heavy volume of trading and new issuance as the market showed some recovery after a difficult morning.

Many emerging market investors squirmed over the morning's drop in equities and an unhealthy earnings report from Merrill Lynch.

Bad earnings were expected, according to one trader, but the investment bank did not inspire confidence with its surprising loss of $7.9 billion. It was the first quarterly loss in six years.

However the primary was undeterred by the bad news. A total of $1.61 billion priced courtesy of two Latin American issuers, Mexico's American Movil SAB and Colombia's Empresa de Energia de Bogota SA ESP (EEB).

In the secondary, the "volatile" and "very busy" market clawed its way back in the afternoon leaving many issues again unchanged or slightly wider, a syndicate desk official said.

Of the high-beta credits Venezuela showed the least motivation to make up for the morning's loses. Its sovereigns due 2027 dropped 0.75 on the day.

Volatility drew a bell curve as it scrambled up past 24.00 in the morning, but fell the cliff to end the day up only 0.39 for the session. The VIX index, which is the accepted gauge of market volatility, closed at 20.80.

With a Treasury rally, emerging markets yields widened mildly, according to JP Morgan's EMBI+ index. The index, which measures the amount of yield investors require to keep money in emerging markets, was seen wider by 5 basis points at a spread of 209 bps.

Primary piles on supply

The pipeline flushed out $1.61 billion in new deals as well as talk from a third issuer, all based in Latin America.

American Movil announced the pricing of a $600 million 10-year tranche and a $400 million 30-year tranche, according to a source close to the deal.

The 5 5/8% 10-year notes priced at 99.633 to yield 5.673%, while the 6 1/8% 30-year notes priced at 99.047 to yield 6.195%.

Credit Suisse and Goldman Sachs had the books on the registered deal.

American Movil is a Mexico City-based telecom provider.

Spreads are assumed to be around Treasuries plus 133 bps for the 10-year tranche and Treasuries plus 153 bps for the 30-year tranche, which is approximately 23 bps wider than expected, said a syndicate source.

"Great name, wrong deal, wrong time," a trader said about the deal.

Empresa de Energia de Bogota priced $610 million of seven-year senior unsecured notes (/BB/BB) at par with a coupon of 8¾% and a spread of Treasuries plus 462 bps.

The bonds priced on top of talk for a yield in the 8¾% area, a figure that had been narrowed from the 9% area.

The amount of the sale was within the planned range of $500 million to $710 million.

ABN Amro was the bookrunner for the deal.

Proceeds will be used to refinance existing debt.

EEB is a Bogota, Colombia-based producer and distributor of electricity.

"EEB was way oversubscribed ... tiny allocations," a trader said.

The issue was seen trading up 1 point in the secondary.

Banco Mercantil do Brasil SA released talk in the 8¾% area for its planned $100 million of three-year bonds (Ba2/B/).

UBS has been mandated as the sole bookrunner for the deal.

A roadshow will be held from Oct. 25 to Oct. 30.

Banco Mercantil is a Sao Paulo-based retail and commercial bank.

LatAm rebounds from morning drop

Latin America began the day losing ground on the negative headlines from the United States, but the secondary found a way to make a comeback.

As the country prepares for its presidential elections, Argentina "traded pretty well," said a syndicate desk official who was "particularly surprised to see the market come back."

Around the sector, rumors were heard of a "big buyback" of the country's sovereigns, he said.

Despite all of the action, the high beta 8.28% bonds due 2033 only moved 0.15 higher for the day to trade at 94.20.

Brazil's sovereigns also found themselves up 0.05 by the end of the day after the dust had settled. Its bonds due 2037 were quoted at 114.80.

Even with oil prices climbing close to $88 per barrel, Venezuela's 9.25% government bonds were unable to rebound. The notes lost 0.75 to trade at 106.50 bid, 107.00 offered.

There was "nothing really going on with the sovereigns," the syndicate official said.

In corporates, EEB was quoted up 1 point from par on its first day of trading. That issue inspired a lift in the 9½% bonds due 2017 from Transportadora de Gas del Interior (TGI), according to a trader specializing in Latin American corporate credit. TGI's issue traded around 103.25.

Hectic Asia ends flat

Asian credits were busy moving, but like the other regions, made the big circle back to where they started as the negative U.S. headlines had almost no net effect on prices.

In the Philippines, a rumored lending rate cut from the central bank was only enough to keep the government bonds due 2030 from dropping more than 0.275. The bonds were quoted at 133.40.

Politics, which had been driving the waffling of bonds in Pakistan, seemed to take the day off Wednesday. With tame headlines the Pakistani bonds due 2017 were quoted at 90.

By the end of the session, Indonesia's sovereigns had not pulled up the anchor and finished flat at 105.5.

Europe softer with equities

Europe was able to stay quieter than the other sectors, but U.S. equities again dragged prices lower on the lighter volumes.

"We were five to 10 [bps] wider in corporates," a trader said.

A stand out in volume was Turkey which traded heavily, the trader said, as reports came in of Turkish air strikes inside Iraq.

Turkish F-16s were seen leaving from southern airbases to conduct raids against the Kurdistan Workers Party (PKK) along the border with Iraq and Iran. Strikes inside the boarder of Iraq were not confirmed.

Although the use of airpower seemed to be an escalation of the conflict, Turkey's bonds were above the fray.

The benchmark Turkish sovereign due 2030 was spotted up 0.625, trading at 156.625 bid, 156.875 offered.

In Russia, food price stabilizations handed down from the Kremlin reminded many market watchers of Soviet-era economic policy.

The price freezing was aimed at rising inflation. Prices of common consumer goods will be locked until January.

The ruble was seen trading 24.867 to the dollar.

Russia's benchmark notes due 2030 were quoted at 113.125 bid, 113.25 offered.

© 2015 Prospect News.
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