Emerging market debt falls behind Treasury rally; Colombia reopens 2037 bond

By Reshmi Basu and Paul A. Harris

New York, Oct. 31 - Emerging market debt was a tad sluggish Tuesday as it was unable to keep pace with a U.S. Treasuries rally triggered by surprisingly weak manufacturing and consumer confidence data.

In the primary market, the Republic of Colombia reopened its global notes due 2037 (Ba2/BB/BB) to add $468.4 million.

The retap priced at 102 7/8 to yield 7.142%.

Earlier in the morning, initial price guidance was set at the 102½ area but then increased to 102 7/8 because of strong investor demand, noted a market source.

Barclays Capital and HSBC were joint bookrunners for the issue of Securities and Exchange Commission-registered global notes.

Proceeds from the reopening will be used for the country's 2007 financing needs.

On Sept. 6, the South American nation sold the original $1 billion issue at 99.062 to yield 7.453%, or 250 basis points more than Treasuries.

Tuesday's addition brings the total size of the deal to $1.468.4 billion.

BCP sells $120 million

Meanwhile Banco de Credito del Peru (BCP) placed a $120 million offering of 15-year subordinated tier II notes (Ba2//BB+) at par to yield 6.95%.

The deal came in line with revised price guidance of the 7% area, which was lowered from initial guidance of 7% to 7¼%.

The notes will be callable in 2016 at par. If the notes are not called, the coupon steps up to a floating rate of three-month Libor plus 279 basis points.

Citigroup was the lead manager for the Rule 144A/Regulation S transaction.

Proceeds from the sale will be used for regulatory capital and for general corporate purposes.

Banco de Credito del Peru is a Lima, Peru, financial company.

EM trails Treasuries

U.S. economic data was once again the catalyst behind Tuesday's performance, according to market sources. The session saw the releases of two economic reports, both of which came in weaker than expected.

On Tuesday, the Conference Board said its consumer confidence index slipped to 105.4 in October.

In a separate report, the National Association of Purchasing Management-Chicago said business activity in the Midwest region expanded at a slower rate than expected.

U.S. Treasuries reacted more strongly as the yield on the 10-year note hit a three-week low while the emerging market asset class took the numbers in stride, noted Enrique Alvarez, Latin America debt strategist for think tank IDEAglobal.

Once again, that data resurrected worries among a few that the United States is heading into a more intense slowdown than originally believed.

However, the emerging market asset class did not buy into the numbers or their potential implications, which explained why Latin America debt remained range-bound Tuesday, noted Alvarez.

By session's end, the JP Morgan EMBI Global index had risen a moderate 0.21% while spreads had widened by 4 basis points versus Treasuries.

Smaller credits emerged at the best performers on a return basis, according to a market source.

Elsewhere, sources have noted that the Brazilian benchmark bond due 2040 has hit a ceiling at 131½ bid.

"Most of the long end of the Brazilian curve looks to be a little toppy," noted Alvarez, who added the Brazilian bond due 2034 appears unable to go inside of 200 basis points. On Tuesday, it was spotted at 215 basis points versus Treasuries.

"The market has come into a range where it feels that we are adequately priced for all the different elements that are out there or at least the future elements that we speculate will be out there.

"Even we are in a very favorable position for assuming risk, I don't think people want to push a lot more here until we see something abnormal.

"And that would have to come from the U.S. side," remarked Alvarez.

MagnaChip stable

MagnaChip Semiconductor Ltd.'s bonds appear to have calmed down Tuesday, following Thursday's crazy ride as the Korean chipmaker reported earnings.

The debt was swinging violently from down as much as 5 points, back up to up 2 or 3 after it posted results.

In trading Tuesday, one trader said he "would say it didn't go anywhere," spotting the 6 7/8% bonds due 2011 around 84.5.

Another source saw those bonds easier by 0.25 at 83.75, while the floating-rate 2011 notes were unchanged at 86. However, the 8% bonds due 2014 were up 1.25 to 61.75.

The Korean high-tech firm had a net loss for the fiscal quarter ended Oct. 1 of $47.7 million, sharply wider than $13.2 million in the third quarter of 2005.

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