Emerging market debt waits for Greenspan to give rate hike pointer; Russia's VTB prices

By Reshmi Basu and Paul A. Harris

New York, April 19 - It was a sluggish session for emerging markets trading Monday as investors looked ahead to Federal Reserve Chairman Alan Greenspan's testimony this week.

"What comes out of his mouth may signal to us how fast and violent an interest rate hike may come," said a trader. "The market is nervous."

The JP Morgan EMBI Index closed nearly flat Monday, down 0.05%. Its spread to Treasuries tightened by five basis points.

"Trading will be sort of flat this week," added the trader.

"EM markets are standing on shaky legs right now."

The widening of emerging market spreads has intensified in the last couple of weeks and will widen further, according to an emerging market analyst. Furthermore, sub-investment grade credits will be hit the hardest by a Fed hike.

"I think as long as it looks like U.S. interest rates are headed higher, EM spreads will continue to widen," said the analyst.

Emerging market credits, especially the sub-investment grade credits, have a chronic need for external financing.

"Those external funds are cheap and easy to get when Fed Funds rates are at 1%, but when the Fed starts to tighten the screws, it's going to get a lot more difficult for EM borrowers to raise the funds they need," he said.

"The problem won't be so bad for the high grade EM names like Korea, South Africa, Poland, etc., but the sub-investment grade EM credits will be the ones that suffer the most."

"Brazil, in particular, with its $25 billion in external amortizations coming due in May - December of this year, is one to watch," he noted.

Meanwhile the Brazilian component of the EMBI index slipped 0.38%. Its spread to Treasuries tightened by three basis points.

The Brazilian benchmark C bond ended the day at 94.375 bid, 94.50 offered, down 6 cents. The Brazilian bond due 2040 was at 98.5 bid, 99 offered, down 0.75.

Venezuela's bond due 2027 was slightly down. It finished at 86 bid, 86.40 offered, down 5 cents on the day.

Meanwhile, Asian sovereign bonds fared better than their Latin American counterparts.

The Philippines bond due 2019 was at 103.50 bid, 104 offered, up 50 cents, while Indonesia's bond due 2014 closed the day at 95.25 bid, 96.75 offered, flat in late afternoon trading.

VTB prices; pipeline builds

Moscow-based Vneshtorgbank priced $325 million of one-year floating-rate loan participation notes at par to yield Libor plus 200 basis points.

Barclays Bank plc was the lead manager on the Regulation S deal.

And set to price Tuesday is Mexico's America Movil.

The Mexico City-based wireless communications company set price guidance for its $300 million notes due April 2007 at Libor plus 62.5 basis points.

Citigroup is running the Rule 144A (with regulation rights) deal.

Adding to the pipeline is government-owned Ukreximbank's minimum $100 million three- to five-year bond offering.

UBS Investment Bank and Dresdner Kleinwort Wasserstein are the joint bookrunners on this Regulation S deal set to price in the second quarter.

Also joining the calendar from the Ukraine is the City of Kiev with a $200 million five- to 10-year bonds.

And three sovereign deals were heard, from South Africa, Romania and Israel.

South Africa is expected to launch a €1 billion global benchmark bond, Romania plans to launch a €600 million 10-year bond issue. And Israel is planning to bring a €400 million bond issue via Deutsche Bank and Morgan Stanley.

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