Emerging market debt higher in quiet session; Venezuelan bonds hold on

By Reshmi Basu and Paul A. Harris

New York, Jan. 19 - Growing concerns over technicals kept investors sidelined Wednesday, but emerging market debt still managed to drift upwards in an otherwise quiet session.

Emerging market debt has been unable to shake off its nervous tone in recent sessions on fears of new supply.

"It's almost like a replay of last year," said a buyside source.

"People are getting a little bit more worried about Brazil and Russia as far as growth prospects and that's put a little pressure.

"The market is really concerned about supply," he said.

Last week, emerging markets were crushed by new paper from the Republic of Turkey, which priced its upsized $2 billion global bonds due 2025 (B1/BB-/BB-) at 98.507 to yield 7.52%. The market was unable to absorb so much supply so quickly.

"We got the Turkey supply. We are waiting for Brazil. And that will be a very large deal," noted the buyside source.

Waiting for sovereigns

Other sovereigns waiting on the issuance platform include Hungary, Ecuador and Venezuela.

Most investors say Hungary's benchmark-size 10-year notes are more like a regular investment-grade bond offering than an emerging markets deal. Deutsche Bank and Morgan Stanley are running that deal. The roadshow runs through Jan. 26.

And on Wednesday, Ecuador's President Lucio Gutierrez and other government officials met investment banks and institutional investors in New York about a potential debt exchange and new issuance.

"That's probably more good news than bad news - that they are reducing their costs," said the buyside source.

Gutierrez also said that he wanted to present economic reforms in the areas of hydrocarbons, electricity and social security.

Also, Venezuela is expected to tap the market with either a euro-denominated or dollar-denominated security.

Meanwhile, real money has been behind the less-than-stellar performance of late, according to an emerging market analyst.

"It's tough to call EM bearish when spreads are still only 380 bps over, but the mood is definitely turning sour among some investors," the analyst said.

"Supply from Turkey has been a problem, but the biggest problem has been concerns that the market is overbought and is headed into trouble as U.S rates go higher," he said.

"It seems everyone is now worried that EM is getting rich to GM [General Motors Corp.], and that crossover buyers will gradually shift out of EM into weak U.S. auto names.

"Hedge funds are playing a role, but this is mostly driven by real money gradually reducing beta," he remarked.

During Wednesday's trading, Brazil's C bond lost 0.005 to 100.87 bid while the bond due 2040 was unchanged at 113 bid. The Ecuador bond due 2030 added 0.65 to 87¾ bid. The Mexico bond due 2009 lost 0.20 to 121.15 bid. The Russia bond due 2030 gained a quarter of a point to 102¾ bid. The Turkey bond due 2030 was bid at 141.27, up 0.87.

The JP Morgan EMBI+ was up 20% in trading.

"It's been real quiet. It seems like people are trying to figure things out. You got a lot of new supply, so people are focusing there," commented the buyside source.

"There's nothing real strong to push the market one way or another."

Russian corporates pipeline

Meanwhile, the buyside source said he is interested in Alrosa's $200 million add-on to its notes due Nov. 17, 2014 via JP Morgan and ING. He played the name the first time around and is looking to play again. The deal prices Thursday.

Another enticing deal comes from Russia's Mobile TeleSystems. MTS is expected to come to market with a benchmark-sized sale of notes due 2012 via Credit Suisse First Boston and Goldman Sachs.

The buyside source predicted that Alrosa would come at the cheap end of price talk. The deal was talked in the 102 area.

"There's such a large amount of supply. MTS is coming and I'm sure that there will be many more to come."

Venezuela holds on despite S&P rating cut

On Tuesday, Standard & Poor's cut Venezuela's foreign currency rating to selective default because the country neglected to make a payment on its oil-indexed debt.

Venezuela's finance ministry said it would place $30 million in a separate account that would be used towards missed payments.

Venezuela bonds felt little impact Wednesday.

The Venezuela bond due 2027 slid 0.15 to 102.10 bid.

"It's quiet. No one knows what to make of it," said the buyside source.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.