Emerging market trade sluggish ahead of Friday's CPI numbers; PTT's bulging books

By Reshmi Basu

New York, July 14 - Emerging market trading crept along Wednesday's as investors waited for Friday's release of U.S. consumer price index data.

One trader described trading as "pretty slow" with little happening in Asia and Latin America.

"We're coming off the highs with the sell-off in the stock market. It's mostly day-trading," he said.

Emerging market paper inched up during Wednesday's session. The JP Morgan EMBI Index rose 0.22%. It spread to Treasuries tightened seven basis points to 471 basis points.

The Brazil C bond fell 0.125 at 93¼ bid but Russia's bond due 2030 was up a quarter point to 92.125 bid.

In primary action, Thailand's biggest petrochemical company PTT PCL set price guidance for its $400 million global bond (Baa/BBB) at Treasuries plus 140 to 150 basis points.

"The deal is going phenomenally well," with books approaching $2 billion, said a buy-side source.

Citigroup, Deutsche Bank Securities and JP Morgan are running the books.

Along with PTT, Petro Ofisi, Vneshtorgbank and Vitro Envases Norteamerica SA de CV are expected to price Thursday, according to market sources.

Also in primary news Tuesday, from Ukraine, the City of Kiev priced $200 million senior notes (B2/B) at par to yield 8.625%.

Deutsche Bank Securities and Morgan Stanley ran the books for the Rule 144A deal.

And adding to the pipeline are Rosbank and Intergaz.

The Russian lending bank Rosbank plans to launch a $250 million five-year eurobond in September.

Credit Suisse First Boston and Merrill Lynch are running the books.

And Intergaz Central Asia plans to issue $150 million five-year eurobond via ABN Amro and JP Morgan.

Intergaz Central Asia is part of Kazakhstan's state oil and gas holding KazMunaiGas.

However, Bucharest-based private oil company Rompetrol has postponed its €250 million three- to seven-year senior notes, according to a market source.

Rush of new issuance

In the last few weeks, there has been a infusion of new supply, as the market appears to be shedding some of its risk.

"People are rushing to get the deals done," said the buy-side source.

"After what happened last month when the market got pretty beat up, now that it has stabilized people want to get the deals done.

"With all the new issuances, it is sort of putting pressure to keep from moving up," he added.

Brazil was one of many sprinters who caught investors by surprise with its $750 million sovereign last week, an offering of 10.5% bonds due July 2014 priced to yield 10.8%.

The new Brazil sovereign is "trading roughly in line with the '13s," added the buy-side source.

Friday's CPI numbers

Meanwhile investors are anxiously anticipating Friday's release of the consumer price index, which is seen as signaling whether the Federal Reserve has a winning game plan moving ahead.

"If we see a mild number that will put into question what the Fed is going to do going forward," said a market source.

"Is the Fed going to raise rates so aggressively?

"If it's a big number, then we are on the right track and the full schedule of rate increases makes sense.

"Otherwise, people will start to believe that the Fed will review its decision," he added.

That data is a big focus for all the international markets, noted the buy-side source.

"If those numbers don't come in nice, you will definitely see a fallback in the market."

Brazil's rumored upgrade

Brazilian paper was lifted by continuing rumors that Moody's Investors Service will upgrade the country.

The upgrade "would make sense because right now Brazil is B2/B+," said the market source.

"An upgrade from B2 to B1 would give Brazil the same ratings as it has at Standard & Poor's.

"That is something that people have been waiting for.

"Any rating upgrade has been priced in," he added.

Invest in Brazilian corporates, says investor

The buy-side source, who is long in Brazil, is underweight in sovereigns and more focused on corporates - "although we have swapped some of our corporate exposure as of late for straight Brazilian risk," the source added.

"I don't think Brazil is out of the forest yet. They still have a lot of issues.

"It's really about relative valuation. The corporates have clearly outperformed."

He adds that he is looking at Gazprom's upcoming dollar-denominated benchmark deal via ABN Amro Holding NV, Merrill Lynch & Co. and Morgan Stanley "for crossover investment-grade accounts."

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