Emerging market debt flat after U.S. job numbers; Cerveceria Nacional to market $270 million notes

By Reshmi Basu and Paul Deckelman

New York. March 9 - Emerging market debt was unchanged Friday on a dollar basis even as U.S. stocks posted gains after U.S. non-farm payroll numbers came in line with market expectations.

In the primary market, Dominican Republic brewer Cerveceria Nacional Dominicana plans to start a roadshow next week for a $270 million offering of seven-year senior unsecured notes (B1/B).

The roadshow will run from March 13 to March 19, making stops in London, Boston, the West Coast and New York.

Citigroup is the lead manager for the Rule 144A and Regulation S deal.

Proceeds from the sale will be used for debt repayment.

Pricing is expected to take place after the completion of the roadshow.

EM flat on job data

Returning to the broader market, emerging market debt was flat on a price basis but outperformed U.S. Treasuries Friday, following solid U.S. job numbers.

During the Asian trading session Friday, Asian credits traded sideways ahead of the release of the employment data.

Momentum was seen in Indonesian and Philippine external debt but that had petered out by the time London opened as investors squared their positions ahead of the release of the jobs report, according to a market source.

The Labor Department reported that 97,000 new jobs had been added in February, coming in line with market forecasts of a 100,000 increase. The unemployment rate fell to 4.5% from 4.6%. Those figures helped alleviate concerns that the job market was even weaker than originally believed.

As a result, U.S. stocks posted their second straight day of gains while U.S. Treasuries sold off.

All in all, emerging market debt had a muted but positive reaction to the news, even as the yield on the 10-year note rose to 4.59% from 4.50% at Thursday's close.

"We essentially held our own price-wise, which means that we've seen a tightening from anywhere to 8 to 13 basis points, depending on which country," according to Enrique Alvarez, Latin America debt strategist at think tank IDEAglobal.

Among benchmark names, the Brazilian bellwether bond due 2040 gave up 0.10 to 133.70. The Argentinean discount bond due 2033 added 0.88 to 115. The Turkish bond due 2030 increased 0.06 to 152.81. The Venezuelan bond due 2027 moved up 0.95 to 126.10.

Latin America tighter

A New York-based trader in Latin American debt said that spreads in his sector were "tighter - the whole market was tighter in general because [U.S.] Treasuries got beat up on the employment data."

"Other than that," the trader said, prices were unchanged pretty much across the board, and nothing went on. It was very, very quiet.

He did say that Venezuela was stronger, recently helped by high oil prices, although crude finally fell Friday to its lowest point in more than two weeks, while still hovering above the psychologically potent $60 per barrel mark.

Venezuela's new 5¼% TICC bonds due 2019 were up 0.45 to 109.20, a new high, while its yield fell 4 basis points to a low of 4.28%.

Venezuela sold $750 million of the dollar-linked benchmark bonds to local investors earlier this month, along with $750 million of Argentine debt, in a joint sale by the two countries. The Venezuelan bonds moved up Friday as banks increased their purchases of the new notes from individual investors who had originally bought them at auction.

Ecuador down

Ecuador's debt was seen lower, down 0.16% on the widely followed JP Morgan EMBI Plus index, with its 10% global bonds due 2030 off by 0.312 in afternoon trading at 85.813. That retreat followed gains on Thursday, when government officials indicated that the country will probably make its next coupon payment, soothing market fears that the payment might be skipped.

That optimistic feeling was short lived, though, amid new political turmoil pitting new leftist president Rafael Correa against a congress largely controlled by his foes. After a court ruling fired 57 of the legislators - more than half of the membership, Correa publicly endorsed the court ruling, demanding before a cheering crowd that the lawmakers much accept the court ruling and step down.

The trader said the country's debt was "maybe a touch lower" as a result of the developments.

In the Asian market, MagnaChip Semiconductor "regained its composure," a trader said, with its 8% notes due 2014 up 1½ points at 68.5 bid, 69.5 offered.

Jobs data does not change outlook

The solid jobs data did not alter investor perception as to the direction of Federal Reserve monetary policy. Instead the numbers are another addition to the current mixed bag of U.S. economic data, which has suggested weakness in manufacturing and housing as the service sector picks up the slack, said Alvarez.

"That being said, it really doesn't change the outlook about the focus of the market, which continues to be the weakness in the sub-prime mortgage market and the possible spillover from that sector into a different number of different areas, but which would include the dedication of investment funds into riskier type categories such as LatAm," he said.

Nonetheless, emerging markets has recovered this week, following the previous global equities sell off in response to concerns over the U.S. economy and the potential unwinding of the carry trade.

During the downturn, the asset class outperformed its equity counterpart, bolstered by strategic inflows and scarcity of fresh supply.

"People understand that there are not a whole lot of dollar bonds to come on line. And there's not a whole lot of need to bring dollar bonds," noted Alvarez.

"Governments are plenty comfortable mitigating risk and issuing on their local markets.

"I think's that one of the reason's why you see people hold so steadily to their paper."

Nonetheless, Alvarez said there needs to be further spread widening to better reflect the risks out there on the external side.

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