America Movil prices upsized $1 billion 30-year bond; funds see $294 million inflows

By Reshmi Basu and Paul A. Harris

New York, Feb. 17 -Mexico's America Movil SA de CV sold an upsized $1 billion 30-year bond in a drive-by, while emerging market debt moved higher Thursday.

America Movil's bond (A3/BBB) came to market at 99.667 to yield 6.40% or 184 basis points over Treasuries.

The issue, which was doubled in size from its initial offering, was well received, with demand boosted because it came at the long end of the curve, according to sources.

"There's a lot of demand for 30 years," said a sellside source.

"A lot of people are talking about the long end being technical because pension funds and long-end buyers are short duration and need to extend the duration of their portfolios.

"There has been a general sway towards the 30-year issues," added the source.

The issuer chose to tap the long end because they could and "because 30Y UST yields are still so ridiculously low," according to an emerging market analyst.

"If you can borrow with a 30Y maturity at 5.90% (or whatever the final yield is), how could you pass up money that cheap?" he observed.

The sellside source added that the new issue was helped by the performance of the United Mexican States' sovereign paper.

"UMS' long end tightened in during the day. It started the day at around 194 [basis points]. It is now at 189 [basis points], so that tightened in five basis points, so that helped," said the sellside source.

The source added that Mexico's America Movil's new 6.38% bond tightened one basis point to 183 basis points over Treasuries by late afternoon.

"They priced about five or six through the sovereign and they are holding there," observed the source.

The analyst added that the issuer avoided some risk and investor apprehension by conducting the deal in one business day.

"I think there's always a danger of letting a deal sit around for too long and let people get cold feet about it, especially when you're trying to do something like bring a 30Y deal to market," he said.

Credit Suisse First Boston managed the sale for America Movil.

Inflows at $294 million

The market posted another banner week for mutual fund flows. Emerging market bond funds had inflows of $294 million in the week ending Feb.16, according to EmergingPortfolio.com Fund Research.

The young year is yet to witness a week of outflows. This is the seventh straight week of inflows, in which a total of $1.76 billion has entered the market. The previous week had an inflow of $368 million, the best week so far in 2005.

Global bond funds had inflows of $607 million in the latest week. These funds have had $2.779 billion of inflows year-to-date.

Greenspan's benign comments

Emerging market debt appeared unfazed by comments made by Federal Reserve chairman Alan Greenspan Thursday. The Fed chief returned to Capitol Hill to testify before the House panel. And just like his previous testimony on Wednesday, the market felt he offered no new insight into monetary policy. He did repeat that federal funds rates are "fairly low".

The debt markets digested his comments fairly well, according to the sellside source.

"But let's face it, [U.S] Treasuries have moved out 10 basis points in the last few days.

"Considering that Greenspan is pointing to the market and saying, 'It's overdone, overextended, too expensive'- yada, yada. I don't think it had that much of an impact," commented the source.

Climbing Bovespa lifts Brazilian paper

While Greenspan's comments did little to affect the market, Brazilian paper was given a lift by the performance of the country's equity market. The Bovespa rose by 2.7%, outperforming everyone else in the world's primary equities indexes.

Brazilian stocks moved higher Thursday after the central bank Wednesday raised the Selic rate to a 14-month high of 18¾% to curb inflation. The market now expects that the tightening cycle is over and that central bank's next move will be to lower rates. That optimism lifted the equity market.

And the Bovespa surge helped Brazilian sovereign paper, according to a Latin America debt strategist at Refco EM.

In trading Thursday, the Brazil C bond was up 0.188 to 102 7/8 bid while the bond due 2040 gained 0.70 to 117.93 bid.

Year-to-date, the Bovespa is up 7.1% in dollars and 3.4% in local currency terms.

In the medium- to long-term, investors may reshuffle their holdings as they take profits in the bond markets, since prices are fairly rich, and reinvest in the strong performing equity market, said the strategist.

"In my opinion, it will take away some liquidity from the bond market," he said.

But he added that this not translate into a downturn for emerging markets, just a reorganization.

Meanwhile, it was mixed trading day for other paper from the Latin America region. The Mexico bond due 2009 was down 0.10 to 121.20 bid. The Venezuela bond due 2027 gained 0.70 to 104 bid.

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