Emerging market debt in lockdown ahead of payrolls, Easter; Kazkommerts sells new debt

By Reshmi Basu and Paul Deckelman

New York, April 5 - Emerging market debt saw little movement Thursday but prices remained firm as the abbreviated trading week headed towards its close. However, the political turmoil in the Ukraine triggered another bout of spread widening for the country.

Meanwhile in the primary market, JSC Kazkommertsbank, issuing via Kazkommerts DPR Co., sold a $500 million notes offering in three tranches.

The deal was divided into three classes of notes, which each carried a tenor of 10 years.

The issuer sold $150 million of class 2007A notes at par to yield Libor plus 20 basis points. The next tranche included $250 million of class 2007B notes, which priced at par to yield Libor plus 20 basis points. And the third tranche was comprised of $100 million of the class 2007C notes, which priced at par to yield Libor plus 16 basis points.

Merrill Lynch and WestLB were lead managers for the deal.

Kazkommertsbank is a private bank, headquartered in Almaty.

Kazkommerts DPR Co. is a Cayman Islands incorporated vehicle.

EM firm

Returning to the broader secondary market, emerging market debt was at a standstill during an illiquid session.

In the Asian trading session Thursday, money from dedicated funds was seen being put to work, according to a market source.

Nonetheless, Asian credits traded with an uneven tone on a mixed session for regional equity markets.

Back in New York, there were very few trades being made while market sentiment remained firm. Many investors were reluctant to add risk ahead of Friday's release of non-farm payroll numbers in the United States. The Securities Industry and Financial Markets Association has recommended an 11 a.m. ET close Friday.

"The market is very quiet," noted a market source. "There's hardly any movement," he added.

A New York-based trader in Latin American debt issues said that "it was a dead day - there were no prices on the screens," except for the new bonds issued by PDVSA, the Venezuelan state oil company.

"Its 10-year notes hung in around an 84ish context, little changed.

"Apart from that," he reiterated, "there was nothing."

He said that for all intents and purposes, "at noon [ET], the [EM] markets closed."

The widely followed JP Morgan EMBI+ index was seen continuing to tighten to a spread of just 161 basis points over Treasuries, considered a new all-time tight level.

Emerging debt saw its average spread drop to just a little above that all-time level by mid-February, but then ballooned upward into the 190s in response to the world equity market downturn in late February and early March as investors shunned risk. But since then it has gradually been tightening, now returning to the tight levels seen before that debacle.

But the trader saw no further spread tightening going on during Thursday's session.

Virtually all Latin American local debt markets, save Brazil's, were closed head of the long Good Friday/Easter holiday weekend.

Brazil's benchmark 2040 global bonds were being quoted unchanged at 135.063, for a record low yield of 5.668%.

Among other benchmark names, the Argentine discount bond due 2033 was unchanged at 116.60 bid, 117.25 offered. The Colombian bond due 2033 gained 0.25 to 145.40 bid, 145.90 offered.

Ukraine down on political conflict

Elsewhere, the Ukraine saw spread widening on the escalating stand-off between president Viktor Yushchenko and prime minister Viktor Yanukovych.

Earlier this week, the president dissolved parliament and called for early elections.

In response, the government has asked the constitutional court to rule on the legality of the president's decision.

On Thursday, Standard & Poor's moved to cut its outlook on the country's BB- rating to negative from stable.

"But the sell-off hasn't had much gusto. There hasn't been panic selling at all," noted the market source.

However the S&P decision was enough to trigger some spread widening.

The Ukrainian bond due 2017 saw its spreads widen by 2 basis points on the S&P news, noted another market source.

At the end of the session, the 2017 bond gave up 0.13 to 107.385 bid, 114.50 offered.

In other news, the Indonesian central bank left interest rates unchanged at 9%, an unexpected move. Market consensus had called for a rate cut.

In trading, the Indonesian bond due 2035 gained 0.21 to 123.31 bid, 123.81 offered.

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