Emerging market debt higher but in narrow range; Sberbank sells $200 million of seven-year notes

By Reshmi Basu and Paul A. Harris

New York, April 28 - Emerging market debt traded in tight ranges Friday as the asset class closely tracked U.S. Treasuries.

In the primary market, Russia's JSCB Sberbank sold a $500 million issue of seven-year senior loan participation notes (A2//BBB expected) at par to yield mid-swaps plus 98 basis points.

The deal priced at the tighter than price guidance, which was set at 100 to 105 basis points over mid-swaps.

Barclays Capital and JP Morgan were joint bookrunners for the Regulation S transaction.

In the secondary, the new bonds were traded higher, spotted at 100.25 bid, 100.50 offered.

Also out of Russia, Nomos Bank sold a $150 million offering of three-year senior notes (Ba3//B+) at par to yield 8¼%.

Citigroup and UBS were the lead managers for the Regulation S transaction.

And Thailand's Siam Commercial Bank PCL sold a $300 million offering of three-year bonds (Baa1/BBB/BBB+) at par to yield Libor plus 23 basis points via Goldman Sachs.

EM range-bound

On Friday, both U.S. Treasuries and emerging market debt traded in narrow ranges. Treasury yields edged lower as the yield on the 10-year note dipped to 5.07% from 5.08% on Thursday.

As a result, emerging market debt generally saw little movement, according to a sellside source.

During the session, the Brazilian bond due 2040 gained 0.85 to 128.80 bid, 128.90 offered. The Ecuadorian bond due 2030 lost 0.05 to 103.50 bid, 103.70 offered. The Russian bond due 2040 was unchanged at 108.50 bid, 108.75 offered. And the Venezuelan bond due 2027 was unchanged at 125.80 bid, 126.25 offered.

One reason why the asset class was range-bound Friday is because investors are trying to get a better picture as to where Treasuries are heading, noted sources.

"That's the question. [Federal Reserve chief Ben] Bernanke made people feel like in the very near-term the Fed may a little bit more predictable.

On Thursday, Bernanke suggested there might be a pause in the current tightening cycle, which helped stem a recent bout of selling in Treasuries.

"I think people are going to watch the numbers," replied the sellside source.

Looking ahead, the asset class will be glued to the performance of U.S. government bonds on an "hour by hour" basis, said the source.

Furthermore, with EMBI spreads at historical tights, the source observed that both prices and spreads imply a better market than actually exists at present.

"If you look at 10-year Brazils, bonds are at 162 [bps] and the long end is at 207 [bps]. That's because we haven't sold off as much as Treasuries.

"We're not seeing a lot of buying there by any means."

The source noted that there still is some money on the sidelines but added that the cash is not burning any holes in investors' pockets.

"Right now in this market, holding cash is not a bad option with where Libor is, so I think some people might feel that's the best alternative," added the source.

Meanwhile sources have said that shorts have been crowded out on the back of government buybacks.

"I think the debt buybacks story is a little old now," observed the sellside source.

"I'm not sure we feel like there are lot of shorts in the market. But I think the hedge funds are generally on the sidelines."

Colombia raises rates

Elsewhere, Colombia's central bank unexpectedly raised interest rate by 25 basis points in hopes to curb inflation.

"We doubt that the decision will have any material impact on the pace of economic growth, among other things, because the adjustment in rates is gradual and because it only reverses 25 basis points of the mid-2005 50 basis point rate cut," said Alberto Bernal, fixed income analyst at Bear Stearns, in a research note.

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