Emerging market debt mixed; funds sees scant inflows of $5.846 million

By Reshmi Basu and Paul A. Harris

New York, April 20 - Emerging market debt saw a mixed trading session Thursday on the back of weaker U.S. Treasuries.

In other news, dedicated emerging market bond funds saw a puny $5.846 million of inflows for the week ending April 19, according to EmergingPortfolio.com Fund Research.

Year to date, funds have seen inflows of $4.349 billion.

In the primary market, Industrial Bank of Korea sold an upsized offering of $500 million five-year floating-rate notes (A3/A-/A+) at par to yield three-month Libor plus 27 basis points via ABN Amro, Barclays Capital and JP Morgan.

The deal was increased from $400 million.

On Wednesday, El Salvador retapped its 7.65% bonds due 2035 to add $400 million in a drive-by.

In secondary trading Thursday, the 2035 bond was spotted down 1 point to 100.75 bid, 101.25 offered. On Wednesday, the bond was quoted at 101.25 bid, 102.25.

EM mixed

Market sentiment was mixed Thursday as investors played a balancing game between weaker U.S. Treasuries and soaring crude oil prices.

Treasury yields popped higher Thursday after the latest data on jobs and inflation hinted that the Federal Reserve may continue to hike interest rates. At session's end, the yield on the 10-year note stood at 5.04%, up from Wednesday's close of 5.03%.

On Tuesday, the market cheered as the Fed looked to be ending its recent monetary tightening campaign following the release of minutes from the last meeting of the Federal Open Market Committee.

But now sentiment has changed, remarked one market source, adding the market is turning anxious due to the forthcoming barrage of U.S. economic data set to arrive from now until the next Federal Open Market Committee meeting on May 10.

"I think everyone is bit confused about the reaction in Treasuries. We're all hoping that they are going to go back below 5 [percent]," remarked a buyside source.

Nonetheless, a trader said emerging markets saw heavy volume.

During the session, the Brazilian bond due 2040 shed 0.35 to 127.95 bid, 128.05 offered.

Meanwhile oil prices soared to a new record high of $72.49 per barrel during intra-day trading before finishing the session at $71.95 per barrel.

As expected, oil exporters such as Ecuador, Russia and Venezuela moved higher, said the trader.

At session's end, the Ecuadorian bond due 2030 gained 0.10 to 101.60 bid, 101.85 offered. The Russian bond due 2030 was higher by 0.13 to 108.625 bid, 108.813 offered. The Venezuelan bond due 2027 added 0.55 to 125.65 bid, 126.15 bid.

However the buyside source said that even as oil pierced new highs, she has not added more oil-credits to her portfolio, given that she was already over-weight in such names as Russia, Mexico and similar players.

Instead she has added risk in local markets.

"We have opportunistically bought some of the local markets, which have sold off in the recent sell off, but not in a big way or anything," she noted.

"We're waiting to see how it plays out with Treasuries."

Colombia rallies

Rumors of a ratings upgrade for Colombia in the local market gave a boost to its paper. Over the past month, the jitteriness of the core rate interest markets coupled with a steeper U.S. Treasury curve has caused a sell-off in country's local bond market and its currency market. The Colombian peso has underperformed Latin American currencies and has yet to catch up to the commodities rally.

The yield on the liquid TES'14 was at 8.8% on Monday, quite a bit wider than the lows of 7% at the end of February, according to an analyst note. But the analyst added that the sell off has gone too far.

"I think the Colombian peso has been stable for along time. And it really hadn't sold off in March with any of the other currencies [such as] Brazil and Mexico," noted the buyside source.

"I think this is just a little catch up move. I think overall, it's probably overdone and it's going to rally from here," observed the source.

The analyst agreed, saying that the U.S. dollar to peso exchange rate will mend, going on to predict it will most likely test the 2.300 level in the next few weeks.

During the session, the Colombian bond due 2027 added 1.50 to 113.50 bid, 114.50 offered while the bond due 2033 edged up by 0.25 to 137.25 bid, 138.25 offered.

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