Peru stabilizes; Pakistan sets issue size at $1.25 billion maximum; South Africa brings benchmark deal

By Paul A. Harris

St. Louis, March 22 - Emerging markets debt spent the session "quietly trading lower," a buy-side source said shortly before the close, adding that the sell-off appeared to be Street driven on very little volume.

The investor added that U.S. Treasuries had been "pretty volatile," firming early Wednesday only to sell off again to end the day basically unchanged.

The source gave a spot on the 10-year Treasury at 4.70%.

"The Mexican peso is lower," the investor added. "There is not a lot of activity.

"Everyone is waiting for Bernanke next Tuesday," source added, making reference to next week's Federal Reserve Federal Open Market Committee meeting which is widely expected to result in a 25 basis points hike in short term interest rates to 4¾%.

The source spotted Brazil paper tighter by three basis points, while Turkey was wider by seven.

Meanwhile a sell-side source, speaking early in the afternoon, spotted the Latin American EMBI index at a spread of 195 basis points, one wider, and commented that up to that point in the session Treasuries had been firming and Latin American debt prices were not moving in tandem.

Kind words hard to find in Peru

Amid the political clamor in Latin America, as some big emerging markets names there brace for upcoming elections, the paper hit hardest by political noise has been that of Peru, sources say.

Peru's 8¾% paper maturing in November 2033, which traded as high as 122.75 bid at the end of February, recently slid below 110 bid, according to one market source.

The sell-off, sources say, is related to the rising fortunes of Peruvian presidential candidate Ollanta Humala, a Leftist and a former military officer who is campaigning on a platform of higher taxes and tighter restrictions on foreign investments.

On Wednesday a sell-side source said Humala, the leader of the Peruvian Nationalist Party, is presently in a "50-50" dead heat with his nearest opponent, Lourdes Flores, a center-right lawyer who is seen as pro-business.

Another market source, conceding that the race to the April 19 Peruvian election does indeed appear to be a dead heat, suggested that the problem is that Humala's fortunes appear to be waxing while those of Flores may be on the wane.

In any case a kind word for the leftist candidate is difficult to come by these days if you are talking to emerging markets players.

One source said Wednesday that the sell-off in Peru's debt becomes even more dramatic when taken in light of the recent overall performance of the asset class.

This source suggested that as she loses momentum Flores' campaign appears to be unraveling, with the candidate resorting to rants and personal attacks upon her opponent.

The source added, however, that the recent polling which has the two candidates drawing even - Flores in the lead but fading somewhat while Humala has the momentum - is concentrated in the cities. If Humala's support in the provinces turns out to be slimmer than expected, by two percent or less, Flores could stand a good chance against him in the second round.

However if Humala wins the April 19 election by 7%, the Flores bid becomes much less tenable.

Peru mostly unchanged Wednesday

While bond market players appear not to care much for the developing political picture in Peru, the republic's sovereign debt had given up no ground to the mid-point of the Wednesday session.

Earlier in the day a source sent a run of prices that had the nearly all of the bonds unchanged.

The above-mentioned 8¾% bonds maturing in November 2033 were trading 110.049 bid, 111.701 offered, or 7.85% bid, 7.72% offered on a yield basis, unchanged.

Meanwhile the middle-maturity Peruvian paper - the middle of the curve is also said to have lately been hammered - was also unchanged. The bonds maturing February 2015 were trading 116.566 bid, 118.736 offered. The bonds maturing October 2014 were 109.176 bid, 110.513 offered, and the bonds maturing in May 2016 were 107.702 bid, 108.221 offered.

A buy-side source suggested that Humala, should he succeed in getting elected, will likely prove more pragmatic than he appears now, cast in the light of his comparatively hard-line left-wing campaign rhetoric.

"He has a left-oriented agenda," the buy-sider conceded.

"A lot of the uncertainty is because people don't really know who he is and they are concerned that the platform he is campaigning on may turn into reality.

"His platform is less market-friendly than Flores' platform," the source added.

"Humala comes from the military. He really hasn't been in the political machine which is something that might appeal to some voters.

"But for the market it creates even more uncertainty."

Pakistan pricing nears

This investor said that the new sovereign deal from Pakistan was roadshowing Wednesday on the U.S. West Coast.

Depending upon what the market does over the next few days this investor "might take a look."

On Wednesday Pakistan set an overall maximum size of $1.25 billion for its two-part deal (B2/B+), which according to the investor was less than the $1.5 billion than the market had been expecting.

Pakistan is marketing 10-year bonds at a yield in the 7 1/8% area, and 30-year bonds at 7¾% to 7 7/8%, with pricing expected on Thursday via Citigroup, Deutsche Bank and JP Morgan.

On Wednesday morning a market source said that the order book stood at $1.25 billion across both tranches, with 65% of the demand in the 10-year paper and 35% in the 30-year paper.

Tranche sizes remain to be determined.

Hungary, South Africa sovereigns

Word also circulated that the Republic of Hungary has given price guidance on its benchmark-sized sterling-denominated 10-year sovereign bonds (A1/B-/BBB+) of Gilts plus 65 basis points to 75 basis points.

Barclays Capital, Deutsche Bank and Lehman Brothers are leading that deal.

Meanwhile the Republic of South Africa was heard to be marketing a benchmark-sized euro-denominated offering of global bonds via Deutsche Bank and Standard Bank.

Investor presentations are set to get underway Monday in London.

Absolut talk

News circulated regarding one Russian corporate on Wednesday.

Absolut Bank is talking its debut eurobond at 8¼% to 8½%.

The issuer plans to sell $100 million to $150 million of the three-year paper (B1//B) via Merrill Lynch.

Meanwhile from Brazil, regional air carrier GOL Linhas Aereas Inteligentes is in the market with a $250 million offering of perpetual notes (Ba2) via Morgan Stanley and JP Morgan.

A source close to the deal said that there is no price talk yet.

However a market source, not on the syndicate, said that the Street whisper has the perpetual coming in the mid-8% area.

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