Emerging market debt firmer as Brazil scandal quiets down; Indosat sets guidance

By Reshmi Basu and Paul A. Harris

New York, June 13 - Emerging market debt drifted higher Monday without any apparent movers to prod it along as the fallout from Brazil's corruption scandal faded away.

In the primary market, Indonesia's Indosat International Finance Co. BV is marketing its $200 million to $250 million of seven-year bonds (B1/BB-) at 7½% area. Credit Suisse First Boston, Goldman Sachs & Co. and JP Morgan are joint bookrunners for the Rule 144A/Regulation S offering.

And petrochemical company Thai Olefins PCL plans to start a roadshow for an offering of $300 million in 10-year bonds (Baa3/BBB-) in Hong Kong on Tuesday.

The roadshow then moves to Singapore on Wednesday and finishes off in London on Thursday.

Citigroup and Deutsche Bank are running the Regulation S bond offering.

Brazil up

During the session, Brazilian bonds recovered ground after a week rocked by a brewing corruption scandal.

Over the weekend, Roberto Jefferson, head of the Liberal Party, acknowledged that he could not prove his allegations that the Workers' Party paid off congressmen in exchange for support in Congress.

There were no new headlines to force a pullback, said sources. That helped the Brazilian real rise 1% to 2.4496 per dollar.

That in turn gave some support to Brazilian securities. The Brazil C bond gained 0.187 to 101.582 bid while the bond due 2040 added 0.30 to 117.60 bid.

The focus will now turn to Brazil's Central Bank, said Enrique Alvarez, Latin America debt strategist for IDEAglobal. The bank on Wednesday will decide whether to raise the Brazil's benchmark Selic rate, currently at 19¾%.

"Over the weekend, were no major new bombs launched as far as the corruption accusations in Brazil...that brings a little bit of relief into the markets and that's why you see the upside," noted Alvarez.

Overall, Latin American trading was mixed. The Mexico bond due 2009 lost 0.35 to 119.05 bid. The Panama bond due 2012 was unchanged at 119¾ bid. The Peru bond due 2012 fell a quarter of a point to 118¼ bid. The Venezuela bond due 2027 gained 0.45 to 101.30 bid.

However, there were no specific drivers to push along Latin America bonds, said Alvarez.

"The market didn't see a whole lot of action. We were slowly marked up in a few countries," he noted, adding that investors were more defensive in countries such as Mexico or countries more subject to U.S. Treasury movements.

"The dollar was a lot stronger which tends to be a negative. But currencies in Latin America basically turned a blind eye to that.

"Treasuries obviously went softer to 4.09% but the market also turned a blind eye to that. There wasn't a driver per se on the upside. It was just acting on its own essentially," Alvarez added.

"There's nothing new in the two themes that seem to be guiding the market, which are inflation and the pace of growth," he said.

The market will continue to trade higher this week, said a market source.

"I think there will be support for the market, unless the inflation numbers [in the U.S] throw the market off," he said.

The producer price index will be released on Tuesday, while the consumer price index will come out on Wednesday.

Ecuador up despite troubles

Meanwhile, Ecuadorian bonds were up in a "curious" move, according to Alvarez.

Former president Lucio Gutierrez was in New York last week, giving up his asylum in Brazil.

"The news from the local front is not that positive," said Alvarez.

"The World Bank is on its way. They are going to go over some of the proposals with the government.

"I think the latest noise out of Ecuador concerns Gutierrez...he is trying to lay some support in an attempt to go back to Ecuador, which I think is farfetched.

"Nonetheless, it made for a lot of negative noise and highlights the amount of instability that still remains on the political side."

Alvarez said that the market might be seeing an erosion of short positions that are slowly being covered.

During the session, the Ecuador bond moved up half a point to 82½ bid.

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