World Cup means trading thin, activity light; some risk aversion returns; MTS sells notes

By Christine Van Dusen

Atlanta, June 16 - The FIFA World Cup continued to take precedence over much market activity on Wednesday, with only sideways glances given to Asian bonds, less-than-stellar economic data, Spain's financial troubles and the upcoming meeting where E.U. leaders will talk about strengthening the eurozone's finances.

The JPMorgan Emerging Markets Bond Index Global spread was 314 basis points, barely moved from Tuesday's 315 bps. And the JPMorgan Emerging Markets Bond Index Plus spread finished Wednesday at 332 bps, versus 333 bps the previous day.

"It's been super, super quiet," a New York-based trader said. "Nothing much has traded, actually. It's very quiet. Volumes are very low. It's all about the World Cup extravaganza."

When not watching the games, the trader was keeping an eye on Asia, which recently saw its credit-default swaps decrease, indicating some confidence in the region's bonds.

"It's pretty firm and constructive still," he said. "It's still cautious, but firm. People are looking at risk, but very selectively."

MTS prices deal

The primary finally opened up again with the sale of $750 million 8 5/8% loan participation notes due 2020 by Russia-based Mobile TeleSystems OJSC. The notes, via special purpose finance vehicle MTS International Funding Ltd., was priced at par to yield 8 5/8%, or Treasuries plus 531.7 bps, according to an informed source.

"That's trading pretty well," a market source said at mid-afternoon. "It's just around par, or a little inside it. So it was a pretty good transaction."

Bank of America Merrill Lynch, Credit Suisse and RBS were the bookrunners for the Rule 144A and Regulation S deal, which was talked at 8 5/8%.

The deal had been expected to price last month but was delayed due to market conditions.

Proceeds will be used to refinance foreign currency denominated liabilities and for general corporate purposes, according to a Moody's Investors Service report.

MTS is a Moscow-based mobile phone company.

Apart from that deal, "activity is still pretty light," he said. "People are finding their feet. In the last few weeks they've definitely taken their stock and are getting back into it in a slow fashion."

The MTS deal was "a good distraction," he said.

Some risk aversion returns

But it wasn't enough to distract from the news that housing starts in the United States fell 10% in May and wholesale prices declined a less-than-expected - but still ho-hum - 0.3%.

Risk-aversion, which had begun to wane, crept back in again. Demand for safer assets increased, and yields on 10-year Treasuries dropped about 3 bps by midday before heading into the close down about 5 bps.

Also affecting risk appetite on Wednesday was word that Spain might seek a €250 billion bailout from the U.S. Treasury, the International Monetary Fund and the European Union. Officials from the three agencies and the sovereign have denied that a liquidity facility is being prepared.

That issue is not expected to be discussed at Thursday's summit in Brussels, which - ahead of the Group of 20 meeting next week - will bring together E.U. leaders for a discussion of fiscal policy and governance.

It remains to be seen whether this meeting, and the decisions that come out of it, will buoy investor confidence in the region.

"A lot of (emerging market) investors have been hurt" by the fallout from the European economic crisis, so "people are still a little bit cautious," a market source said.

"I think if the market stabilizes we'll definitely see more deals," he said. "It's just that things were so volatile for such a long period of time. It was really impossible for a lot of these guys on the sidelines to get involved."

So he's hoping for a "week or two of calm conditions, not the headlines we've been seeing," he said.

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