Emerging markets head sideways; JBS sells upsized $700 million notes; sector spreads tighter

By Aaron Hochman-Zimmerman

New York, April 22 - Emerging markets "is just sort of moving sideways," a strategist said.

There were some small victories in trading on Wednesday, but most of the market was focused on the pricing of the U.S. high-yield JBS USA, LLC and JBS USA Finance, Inc. deal.

The beef and chicken producer priced an upsized $700 million note offering with a 13% yield.

"I'm surprised they were able to place it at all," a strategist said, but obviously there was heavy interest.

"It does bode well for the corporate sector," he said, but "I don't think that this will necessarily open up the floodgates" of issuance.

Nearly 20% of the market that needs to issue is trading at more than 1,000 basis points, he said, and even if an issuer pays up to print at those levels, "it deteriorates the creditworthiness of your balance sheet."

Meanwhile, emerging markets remained tucked tightly in formation with major market equities.

Volatility dipped midday but climbed back to end higher by 0.96 at 38.10, according to the VIX index. The index is an often used gauge of market volatility.

As a sector, emerging markets tightened as Treasury yields neared 3%. JPMorgan's EMBI+ index was seen tighter by 2 bps to a spread of 562 bps. The EMBI+ estimates the amount of extra yield investors will demand to hold assets in emerging market debt.

The EMBI global diversified index, which represents sovereigns and quasi-sovereigns, was tighter by 2 bps with a spread of 601 bps.

The diversified index has a less strict liquidity rule for inclusion.

JBS USA prices upsized $700 million

JBS USA, LLC and JBS USA Finance, Inc., the American cousin of Brazil's JBS Friboi, priced $700 million five-year senior notes at 95.046 with a coupon of 11 5/8% to yield 13% (B1//B+).

The bonds were upsized from $400 million and priced in line with talk in the 13% area.

Joint bookrunners for the notes, J.P. Morgan Securities Inc. and Banc of America Securities LLC, originally expected books to close at 2:30 p.m. on Tuesday but were reopened in order to tweak covenants, a source said.

The bonds saw strong demand through Wednesday morning and priced with a spread of Treasuries plus 1,114 bps.

ING, Rabobank, BMO Securities and Credit Suisse are co-managers.

Proceeds will be used to repay inter-company debt and credit facilities and for general corporate purposes.

The issuer is a Greeley, Colo., beef and pork processor.

The bonds fidgeted up and down to a peak of 96½ bid, a trader said, as the bonds found themselves mostly "in the hands of flippers."

The bonds settled at 95¾ bid at the close.

LatAm slides sideways

Elsewhere in Latin America, the trading was calm as "all of the excitement has been Monday and Tuesday," said Enrique Alvarez, a Latin America debt strategist at think tank IDEAglobal.

"We're going sideways," he said, as the sector is "too tied into the U.S."

Colombia's retapped 7 3/8% bonds continued to improve slightly after the government reached out to the International Monetary Fund for help.

The bonds due 2019 were seen better by ¼ point at 102 7/8 bid, 103 offered.

Colombia may like to place more long-term debt in the future, Alvarez said, but "for the moment they're out."

Investors have proven they will buy 10-year paper, but "the market won't do longer-term," he said.

"I think they're going to wait and hold here," he said about the category's interest in the primary market.

"Interest rates are working against you," he added.

Meanwhile, some investors were encouraged by Ecuador's offer of 30 cents to the dollar for its defaulted debt. Others felt that Quito may "sweeten the deal," but "it's all tactics at this point," Alvarez said.

In Venezuela, bonds improved as oil prices saw a small uptick at the end of the session.

The 9¼% government bonds due 2027 added 1.3 points to 63.8 bid, 64¾ offered.

Also, Argentina's 8.28% discount bonds due 2033 fell 0.3 point to 28.8 bid, 29½ offered, while Brazil's 5 7/8% bonds gave back 3/8 point to 97 5/8 bid, 98¼ offered.

Asia mostly unchanged

Asia largely held still as equities in the United States waffled and ended the session mixed.

In the Philippines, central bank governor Amando Tetangco saw a reason to be optimistic about the economy as U.S. housing and manufacturing may be turning around, he said in the Manila Times.

The United States is a major importer of Filipino goods and employer of Filipino workers.

"Many things, factors need to be considered. But yes, a medium- term strategy would include a reversal of some of the easing that the [central bank] implemented," he said.

The peso was seen trading at 48.62 to the dollar.

In Indonesia, the government is predicting an economic turnaround in the second half of 2009, said acting coordinating minister for the economy Sri Mulyani Indrawati, according to the Jakarta Post.

Success in the future depends a great deal on positive changes in the banking systems of the United States and Europe, she said, but "if sentiments toward recovery continue in the third quarter, there's a chance for recovery to take place in the second semester."

The Indonesian sukuk due 2014 was unchanged at 101½ bid, 100.8 offered.

Pakistan sinks on Taliban turnover

Pakistan turned over the Swat Valley to the Taliban, which will impose Islamic law on the northwestern region.

The government has been unable to control the area and had been in talks to arrange at least limited sovereignty for local militants.

"I think that the Pakistani government is basically abdicating to the Taliban and to the extremists," U.S. secretary of state Hillary Clinton said.

The bonds due 2017 sank by 4 points to 47 bid, while spreads widened 100 bps.

Russia emergency fund low

Emerging Europe traded slightly higher as spreads tightened slightly on Treasury action.

In Russia, the government will spend nearly its entire recession reserve fund in 2010, said finance minister Alexei Kudrin, reports said.

Kudrin lauded the creation of the fund, adding that it had done what it was designed to do by supporting the economy in a time of crisis.

In addition to its current stimulus spending, Moscow may be forced to use its national welfare fund to support pensions in the future, he said in the report.

The Russian sovereigns due 2030 added 3/8 point to trade at 97 bid, 97½ offered.

Meanwhile, Turkey's government bonds due 2030 tacked on ¼ point to 142¼ bid, 144 offered.

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