Brazil's, Russia's paper firmer; Russia's MegaFon tightens guidance

By Reshmi Basu and Paul A. Harris

New York, Dec. 1 - Emerging market debt was well bid Tuesday as more buyers laid claim to Russian and Brazilian paper.

There was a better tone to the market, said a buyside source, mentioning Russian paper in particular.

The Russia bond due 2030 added 7/8 of a point Wednesday to close at 100¼ bid.

Also, investors continued their love affair with Brazil as its paper moved higher during Wednesday's session.

"In Brazil, there was a lot of local buying," said the buyside source.

The C bond was up 0.562 to 101 bid while the bond due 2040 gained 0.70 to 115.70 bid.

Other movers on the day included Ecuador. Its paper due 2030 added 0.15 to 86.15 bid while its bond due 2012 was up ¾ of a point to 102 bid.

Turkey's bond due 2030 gained 0.687 to 138.437 bid.

The overall tone of the market is bullish - some of which is based on technicals, according to a debt strategist.

"Today [Wednesday] starts a new fiscal year for some of the biggest banks in the business," he said.

"Banks have been a little cautious in November because they are trying to close their fiscal year up and not do anything silly. Traders are protecting bonuses and stuff.

"Now for them, it's like Jan. 1.

"It's new capital, new accounting period. My guess is that they are inclined to take on rather then shed risk. And that would be bullish for the asset class," he commented.

Ukraine's better bid

Ukrainian debt was a little stronger Wednesday as it appeared that the country's voters will be heading back to the polls to settle the disputed presidential run-off election between president-elect Victor Yanukovych and Viktor Yushchenko.

President Leonid D. Kuchma and the two candidates have agreed to begin drafting proposals for the new election, after the Supreme Court rules on the charges of election fraud.

The paper was slightly better bid during Wednesday's session as the spread tightened by a few basis points, said the buyside source.

"We're still facing a lot of uncertainty there in terms of what is going to happen.

"I think the general view in the market is that eventually the outcome is going to be positive," but after a rocky start, said the source.

MegaFon lowers guidance

In the primary market, Russia's MegaFon SA lowered price guidance for its $375 million five-year senior fixed rate bullet notes (B2/B+/BB-) to a yield of 8% to 8¼%.

Initial price guidance was set at 8¼%.

Citigroup and ING are running the books for the Regulation S offering.

Also in primary news, State Bank of India priced an upsized $400 million bonds due 2009 (Baa2/BB) at 99.574 for a spread of Treasuries at 117½ basis points.

The bonds, increased from $300 million, came in tighter than price guidance. Guidance was set at Treasuries plus 120 basis points.

Citigroup, Deutsche Bank and HSBC ran the books for the Regulation S deal, which was sold through the bank's London branch.

Investors favor Brazil and its yield

Brazilian paper continues to be a darling in the asset class as investors like the country's economic progress, according to the debt strategist.

"The economy is strong and it certainly looks like capital seems to be flowing into and not out of the country - and that's just based on what the exchange rate is doing here."

The exchange rate has become so strong that Brazilians are complaining about it, he said.

Last week Brazilian President Luiz Inacio Lula da Silva said that the real has become too strong and is curbing export growth.

The government reported Wednesday that the trade balance fell to $2.08 billion from $3.01 billion in October.

"I think a lot of people in emerging markets actually believe that if they just stay the course with fiscal discipline, this is a country that really is a natural counterparty to the strength of Asian demand. The terms of trade have moved in a commodity-friendly direction, which Brazil is well positioned to benefit from.

"Over time, they are at least a reasonable upgrade story and they still have yield. And yield is scarce on the planet today."

The positive fundamental outlook, at least for the medium term, coupled with a sovereign name that is actually delivering yield is an attractive prospect for investors, who have been driving the paper higher, he said.

"The Brazilians themselves seem to be happy enough about things," he noted.

More inflation-linked paper

Views on inflation and the Brazilian currency have also been influencing primary market activity.

In recent days, there have been announcements of proposed real-indexed bonds from Banco Bradesco and Banco ABN Amro Real SA.

And Inter-American Development Bank (IADB) said it plans to sells five-year notes linked to the Brazil inflation index (IGP-M Index) via ABN Amro.

"World-wide, people feels like there is an investor appetite for inflation-linked paper because there is real concern about not so much inflation in Brazil but inflation world-wide," said the strategist.

"And once you start thinking like that, then you ask - where can you really get paid? And if you had a view that you are going to be paid at the Brazilian inflation rate and maybe the real still has some real appreciation ahead of it, then that would be an interesting total return idea," he observed.

"But you can also go, 'why not buy straight real paper?' because there you can pick up a 10% yield.

"There's clearly a bid for the real. Otherwise, the currency wouldn't be reacting like this."

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.