Emerging markets slide deeper into the red; Indonesia awaits market stability for $1 billion-plus 10-year

By Paul A. Harris

St. Louis, March 24 - After ending Wednesday with a bit of a bid, emerging markets opened the abbreviated Thursday trading session slightly stronger.

However sellers soon took over, generally driving prices down toward the lowest levels seen since EM began its retreat well over a week ago.

And the benchmark-sized Indonesia sovereign deal - yanked off the melting Wednesday market - is not gone altogether, a syndicate source said Thursday. However the pro forma spread is substantially higher than that which circulated early in the March 21 week.

A little boost

Late Wednesday traders reported seeing prices on some of the benchmark emerging markets issues that had firmed from lows hit earlier in the day - although they were still well off the levels where they had been trading a week previous.

That tiny burst of buoyancy appeared to be maintained at the open.

However the emerging markets parade continues to move unmistakably toward the exits, one trader reported shortly before Thursday's early close.

"Prices got a little boost but gave it back, and then some," the trader said.

"The market traded a little better in the morning but by late morning it began trading off. It fact it appears to be reaching for lows of the past few days - very close to Tuesday's low, in fact.

"The Brazil 2040s are 108.55 bid. The lowest I had seen them throughout this sell-off was 108.50."

When asked to cite exceptions to the rule the trader merely said: "Everything is selling off.

"Russia is flat," the trader added. "Therefore it is outperforming.

"And Colombia appears to be getting hit a little harder than the rest. However I think that's more of an issue of liquidity rather than bids being hit."

Earlier in the session, another market source said that Ecuador, Venezuela and Colombia were especially hard hit, but suggested that those bonds might be positioned to outperform should the market begin to rally.

With regard to Russia, meanwhile, a source said that the benchmark 2030 was seen early Thursday at 101.125 bid, 101.875 offered, up from 101 bid, following a big purchase of the paper by an investor in western Europe.

The trader said that late Thursday the JP Morgan EMBI-plus index was four basis points wider at 378.

"Every time there is a pick up there are sellers who push the market down again," the trader commented.

"The emerging markets names themselves don't appear to be in bad shape. But it's more of a market treatment, with rates going up and with volatility.

"There are dedicated accounts that have not sold in the past few days, and that are still long on the credits. But that has not caused the market to go up."

Another market source had levels that bore out this trader's color: the Venezuela global bonds due 2018 traded late Thursday at 128.0 bid, 132.0 offered, well off the 129.50 bid 130.688 offered at Wednesday's close. And the more liquid Venezuela 2027 paper was seen late Thursday at 97.95 bid 99.30 offered, down from 98.15 bid, par offered, at Wednesday's close.

The source also spotted the Brazil 2040 at 108.50 bid, 109.50 offered, off half a point on the session.

"Some of this selling is people getting out of bad longs," the source commented, adding that shorts no doubt continue to be set.

Indonesia measuring the market

Meanwhile Thursday, news was heard on the Indonesia dollar-denominated benchmark-sized deal that was said to have been playing to considerable fanfare as it took shape just one week ago.

The expected $1 billion to $1.5 billion 10-year sovereign bond, sidelined by the recent extensive sell-off in emerging markets securities, is being whispered in a price range of U.S. Treasuries plus 240 to 260 basis points, according to a syndicate source.

The source added that Indonesia is unlikely to move forward with the deal before emerging markets, which have been selling off for the past week, begin to improve.

Asked about earlier reports from market sources that the deal was being talked at Treasuries plus 170 to 190 basis points, the syndicate source declined to comment.

Deutsche Bank Securities, UBS Investment Bank and Citigroup have the books for deal.

With regard to the whisper on the deal, the source said that Indonesia's 2014 paper was trading Thursday at a spread to Treasuries of 226 basis points.

"There is no way there is going to be a handle in the 100s on that new paper," the source added.

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