Emerging market debt extends gains; Korea sells $1 billion in two parts; funds see $522 million inflows

By Reshmi Basu and Paul A. Harris

New York, Nov. 30 - Emerging market debt inched higher Thursday as the market extended the recovery begun the previous session.

Meanwhile investors appear to be hungry for emerging market paper. This week saw the biggest flows into the asset class since March 22, reported EmergingPortfolio.com Fund Research.

Emerging markets saw a whopping $522 million of inflows for the week ending Nov. 29, the ninth consecutive week of positive flows.

In the primary market, the Republic of Korea placed a two-part offering of $1 billion equivalent in senior unsecured notes (A3/A/A+) on Thursday, which included $500 million of 10-year notes and €375 million of 15-year notes.

The deal was more than two and a half times subscribed, noted a market source, who added the offering was intended to extend the sovereign's curve.

The 10-year notes priced at 99.583 to yield 5.179%, or a spread of mid-swaps plus 22 basis points. That came at the tight end of revised price guidance of mid-swaps plus 22 to 24 basis points, which was lowered from initial guidance of 23 to 26 basis points.

Meanwhile the 15-year notes came at 99.902 to yield 4.259%, or a spread of mid-swaps plus 25 basis points.

That also priced at the tight end of revised guidance of 25 to 27 basis points more than mid-swaps, which was lowered from initial talk of 26 to 29 basis points.

Barclays Capital, Citigroup, Credit Suisse and Korea Development Bank were joint bookrunners for the issue, which has been registered with the Securities and Exchange Commission.

Sources noted that the new sovereign paper closed around the issue prices.

EM firmer

Emerging market debt rode higher Thursday, as real buying appeared to have made a comeback, according to a source.

Prior to Wednesday's rebound, the debt market had seen several days of selling pressure, triggered by softness in U.S. equities as well as a reduced appetite for risk.

On Wednesday, a strong gross domestic product report in the United States fueled gains in U.S. stocks, which in turn resulted in tighter spreads for emerging markets. And that sentiment carried into Thursday's session, remarked sources.

High beta credits such as Argentina and Brazil moved higher. In trading, the Argentine discount bond due 2033 jumped 1.15 to 101.80 bid, 102.40 offered while the bellwether Brazilian bond due 2040 added 0.45 to 133 bid, 133.5 offered.

Turkey also extended gains, shrugging off news that the European Commission had proposed partially suspending talks with county, citing Ankara's refusal to open its ports to Cyprus.

During the session, the Turkish bond due 2030 moved up 0.63 to 152.375 bid, 152.625 offered.

Colombia dips

Meanwhile, Colombia saw an uneven session following several volatile sessions on reports of an alleged relationship between some members of president Alvaro Uribe's coalition and paramilitary groups.

In trading, the Colombian bond due 2010 gave up 0.25 to 115.15 bid, 115.25 offered while the bond due 2033 shed 0.20 to 140 bid, 140.50 offered.

Moving to Asia, everybody was focused on emerging market sovereigns in the morning, such as Indonesia and the Philippines, according to a trader who focuses on Asian fixed income.

The Philippines outperformed the market, especially on the long end, noted the trader, who added that there was a big buyer out of Europe and another big buyer from the United States.

Additionally, he observed that spreads were 20 basis points wider than they were two weeks ago because U.S. Treasuries have rallied so much.

"Meanwhile cash prices stayed the same, and a couple of buyers noticed that this [Thursday] morning, and took the market higher," he said.

In trading, the Philippines due 2031 was spotted going out 1.125 basis points higher on the long end of the Philippines curve: 111.125 bid, 111.25 offered, opened 110 bid, 110.375 for the day

Gazprom higher on upgrade

On the corporate front, Standard & Poor's lifted its long-term corporate credit rating on Russian energy giant, OAO Gazprom, from BBB- to BBB with stable outlook, citing the government's willingness to support the oil giant.

In trading Thursday, the Gazprom 8 5/8% bond due 2034 gained 0.88 to 128.13 bid, 128.28 offered.

In separate news, Brazilian mining company Companhia Vale do Rio Doce has been trading down on reports that it would sell company shares on the London Stock Exchange.

Earlier in the session, the corporate's 10-year bonds were spotted wider by three basis points while the 30-year bond was seen wider by one basis point.

In late afternoon, the corporates were better bid, according to a trader. The CVRD 6¼% bond due 2016 was spotted at 101.09 bid, 101.37 offered, up 0.67 while the 8¼% bond due 2034 was quoted at 117.97 bid, 118.53 offered, up 0.99.

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