Emerging market debt lower on U.S. Treasuries softness; new issues out of Asia

By Reshmi Basu and Paul A. Harris

New York, March 8 - Emerging market debt faltered Tuesday on a weaker U.S. Treasuries market.

Meanwhile investors in Asia focused on new supply - most of this week's issuance is coming from Asia, a market source said - leaving the secondary with just light flows.

Philippine sovereigns continued to rally, coming in another ¼ to ½ point on the long end of the curve.

Another source added that prices of the sovereigns have rebounded to their pre-downgrade level, due to excess liquidity in the world market.

On Tuesday, new paper came from Korea and Malaysia.

Export-Import Bank of Korea priced $1 billion of five- and 10-year bonds (A3) in its inaugural offering this year.

The state-run bank sold $400 million of five-year bonds at 99.612 to yield Treasuries plus 68 basis points and $600 million of 10-year bonds at 99.752 to yield Treasuries plus 79 basis points.

Barclays Capital, Citigroup and Credit Suisse First Boston managed the sale.

From Malaysia, oil-palm plantation company IOI Corp. Bhd. priced an upsized $500 million of 10-year bonds (A3/BBB+) at 99.294 for a spread of Treasuries plus 103 basis points. This is the company's debut offering in the capital market.

The deal, increased from $350 million, came at the lower end of revised price guidance. Guidance had been cut to 105 basis points from 107 to 112 basis points.

Barclays Capital and Citigroup ran the Regulation S offering.

Still ahead, Noble Group and ChinaTrust are expected to price this week, said a buyside source.

ChinaTrust Commercial Bank of Taiwan plans to issue a minimum $300 million (Baa1//A-) of perpetual bonds.

Singapore's Noble Group is issuing $500 million of 10-year senior notes.

And each of their books is bulging. Both Noble & ChinaTrust are well oversubscribed, with each fetching orders of around $1 billion.

The source added that preliminary price guidance for the deals will be out at the Wednesday open in Asia.

Noble completes the U.S. leg of its roadshow on Wednesday in Los Angeles.

Noble will price on Thursday and ChinaTrust will price on Friday.

JP Morgan is running both Rule 144A/Regulation S deals.

Also adding to the Asia pipeline, Indonesia will start a roadshow next week for an offering of $1 billion in international bonds.

Pricing is expected to take place in the middle of the March 21 week.

Citigroup, Deutsche Bank Securities and UBS Investment Bank will be the lead managers. Credit Suisse First Boston and JP Morgan will be co-managers.

Emerging market debt lower

All good things must come to an end as emerging market debt fell after two days of gains sparked by Friday's payroll numbers. The market continues to track technicals as there is a dearth of major country news.

U.S. Treasuries were weaker Tuesday for the first time in three days, sending emerging markets down.

"There was a little bit of softness in the market," said Enrique Alvarez, Latin America debt strategist for think tank IDEAglobal.

"You can attribute the soft tone in the high beta camp to the reversal in the U.S. Treasury markets."

The yield on the 10-year note stood at 4.39%, up from Tuesday's close of 4.30%.

Furthermore, he added that the move to higher yields in the Treasury market triggered profit-taking in Latin America. The Brazil C bond was down 0.376 to 101.812 bid. The Mexico bond due 2009 fell 0.15 to 120.35 bid. Venezuela's bond due 2027 dipped ¾ point to 105.35 bid.

Alvarez added that the market has not reacted to the weakness in the U.S. dollar.

"That's a noteworthy event, which runs counter to what has occurred in prices today [Tuesday]."

With no economic data, the U.S. dollar fell, as investors will focus on Friday's trade deficit report.

Looking ahead, investors will pay attention to how the Treasury market absorbs $24 billion of new paper.

The Treasury Department plans to sell $15 billion of new five-year notes on Wednesday and sell $9 billion more of its earlier auctioned 10-year notes on Thursday. And of course, Friday's trade deficit report will be important to emerging market investors.

© 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.