Thin volume day; Ukraine wider on election jitters; AES Chivor sets talk at 9 7/8% to 10%

By Reshmi Basu and Paul A. Harris

New York, Nov. 22 - In thin trading, emerging market debt recovered Monday after being rocked by comments made by Federal Reserve Chairman Alan Greenspan on the repercussions of a continued weak U.S dollar last Friday.

"We saw most of the reaction on Friday," said a buyside source. "The main news today [Monday] was the elections in the Ukraine. Other than that, we didn't see a lot of trading," said the source.

Ukraine has been thrown into political turmoil as tens of thousands of people have contested the outcome of Sunday's presidential elections in which Prime Minister Viktor Yanukovych was declared the winner. Opposition challenger Viktor Yushchenko is calling foul play, alleging election fraud.

The central electoral commission reported that with more than 99.33% of the vote tallied, Yanukovych had 49.42% of ballots while Yushchenko had 46.3%.

"Paper widened about 24 to 25 basis points today [Monday], said the buyside source.

"There's definitely a concern about fraud. We're seeing social unrest - people on the streets. It's a situation that could get out of control, so it's been marked down.

"I haven't heard of a lot of sellers. I think the bonds are being marked down in response to the political uncertainty," said the source.

Other emerging markets paper was generally slightly down Monday. The Brazil C bond fell 0.063 to 100.87 bid while the bond due 2040 added 0.45 to 115.20 bid. The Ecuador bond due 2030 lost 0.50 to 84 ½ bid. Mexico's bond due 2009 slid 0.15 to 122.60 bid. The Russia bond due 2030 was bid at 101 1/2, down 3/8.

There was another blow to the restructuring process in Argentina as Bank of New York Co. withdrew as the clearing agent for the swap. Bank of New York told the government that it was not possible to meet the launch date of Nov. 29 for the $103 billion debt restructuring.

The Argentina bond due 2008 fell 1.05 to 31.70 bid.

AES Chivor sets talk at 9 7/8% to 10%

In primary news, Colombia's AES Chivor SA ESP set guidance for its upcoming sale of $150 million of 10-year senior notes (B1/B) at 9 7/8% to 10%. The order book was already over $400 million on Monday, according to a market source.

Deutsche Bank and Bank of America are running the Rule 144A/Regulation S (no registration rights) notes offering.

Also in primary news, Russian Standard Bank plans to retap its 8¾% senior unsecured notes due April 2007 (Ba3/B) for $100 million to $150 million at a price of 102 5/8 to 102¾ on Tuesday.

On April 2, Russian Standard Bank priced an upsized issue of $150 million of three-year senior unsecured notes (Ba3/B) at par to yield 8¾%. Barclays Capital and Citigroup ran the deal.

EM rally on track till year-end, says investor

Emerging market paper will continue to grind tighter heading to the end of the year, said the buyside source.

"I think there is a little bit more to go because of technicals - probably towards year-end," the source predicted.

"At least that's what we're hearing from everyone, that there's still quite a bit of money to be put to work in EM.

"I can see 10, 20 - more - 30 [bps] tightening. Maybe that's being a little optimistic, but I think there's some more tightening in the cards. And people are just not ready to sell yet.

"It's a risk appetite story here. Investors are feeling a bit more comfortable with the asset class since June/July and as long as you are getting a nice coupon and no blow up is on the horizon, why not hold it?"

Citigroup agreed that emerging market debt would continue to grind higher as external and domestic factors are generally supportive, according to its Bond Market Roundup Strategy report.

"Nonetheless, we remain cautious because the risks appear one-sided and may grow over time. It would be difficult to improve on the current environment of reasonable growth, low interest rates and high commodity process," wrote analyst Lewis Alexander.

Citigroup recommends neutral weighting in key credits such as Brazil and Russia, according to analyst Keerthi Angammana.

Another suggestion is to switch to cheap euro paper at a flat or improved yield over its dollar-denominated counterpart.

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