Emerging market debt tightens ahead of job numbers; Israel sells $1 billion in notes

By Reshmi Basu and Paul A. Harris

New York, Nov. 2 - Emerging market debt saw an uneven session Thursday as it traded in tight ranges while investors awaited the release of the pivotal U.S. non-farm payroll numbers on Friday.

In the primary market, the State of Israel placed an upsized offering of $1 billion in 10-year global notes (A2/A-/) at 99.378 to yield Treasuries plus 98 basis points.

The deal, increased from $750 million, came inside of price guidance of 100 to 105 basis points over Treasuries.

The issue was more than six times oversubscribed, according to a market source.

Deutsche Bank Securities and Morgan Stanley were joint bookrunners for the issue of Securities and Exchange Commission-registered notes.

Citigroup, Goldman Sachs, Lehman Brothers and Merrill Lynch were co-managers.

And out of South Asia, Pakistan Mobile Communications Ltd. sold $250 million in seven-year senior unsecured notes at par to yield 8 5/8%.

The issue came inside of price guidance of 8¾% to 9%. The notes are non-callable for four years.

ABN Amro and Deutsche Bank were bookrunners for the Rule 144A/Regulation S offering.

EM sees quiet session

Emerging market debt saw a mixed session Thursday, as U.S. Treasury yields rose on the back of data that showed unexpectedly strong labor costs in the third quarter, which suggested that inflation might not be that easy to reign in.

Market sources noted that the data threw a wrench into investor hopes that the Federal Reserve would cut the fed funds rate. That speculation has propelled the 10-year Treasury note to hit a four-week low over the previous two sessions. On Thursday, Treasuries saw some profit taking as the yield on the 10-year note stood at 4.59% from 4.63% the day before.

As a result, emerging market debt trimmed sovereign prices on more liquid issues, but overall remained in a "wait and see mode," noted a trader.

Additionally, trading volumes were light as both Brazilian and Mexican financial markets were closed due to holidays. Overall, the asset class saw spreads tighten by three basis points and was slightly down on a dollar basis, observed one source.

In trading, the bellwether Brazilian bond due 2040 shed 0.05 to 131.90 bid, 131.95 offered. The Argentinean discount bond due 2033 gave up 0.35 to 101 bid, 101.25 offered. The Colombian bond due 2033 eased 0.25 to 138.25 bid, 139.25 offered. The Mexico bond due 2026 lost 0.90 to 160.10 bid, 161.10 offered.

Smaller credit rally

Meanwhile smaller credits such as the Dominican Republic continued their run-up, with the Dominican Republic making its way to become one of the asset class's best performers Thursday, noted a market source, who added that "investors' appetite for risk is alive and kicking as the market seems okay with the U.S. growth story."

During the session, the Dominican Republic's bond due 2011 added 0.25 to 107.75 bid, 108.75 offered while the bond due 2018 moved up by 0.50 to 115 bid, 116 offered.

Relatively illiquid credits such as Indonesia, Lebanon and Qatar also gained in the secondary. The Indonesian bond due 2015 rose 0.15 to 106.25 bid, 106.75. The Lebanese bond due 2009 increased by one point to 107 bid, 107.50 offered. The Qatar bond due 2030 added 0.75 to 149.50 bid, 150.50 offered.

In other news, Ecuadorian sovereigns rallied on the latest opinion poll. According to the Cedatos-Gallup poll, banana tycoon Alvaro Noboa widened his lead over Rafael Correa.

In trading, the Ecuadorian bond due 2030 was higher by 0.70 to 100.50 bid, 100.70 offered.

Moving ahead, Friday's session might be "a crazy ride" depending on how the jobs numbers fall, according to the trader. This week has seen an onslaught of soft U.S. economic data, which has pointed to a slowdown in the U.S. economy, which means that the market will scrutinize the jobs report for more clarity.

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