Emerging market debt sees better tone; three corporates set guidance

By Reshmi Basu and Paul A. Harris

New York, Oct. 18 - Emerging market debt saw a better a tone Tuesday following Monday's constructive session. Equities' ability to absorb U.S. inflation figures helped spreads on the asset class tighten, said sources.

In the primary market, three corporates set price guidance.

Russia's Renaissance Securities Trading Ltd. set price guidance for a $150 million offering of three-year senior unsecured bonds (//B/BB-) at 8%.

Dresdner Kleinwort Wasserstein and Renaissance Capital are joint bookrunners for the Regulation S transaction.

Moving to South Korea, GS Caltex Corp. set price guidance for an offering of $300 million in 10-year fixed-rate bonds (Baa1/BBB+) at Treasuries plus 110 to 115 basis points.

Banc of America, Barclays Capital and Merrill Lynch are the lead managers for the Rule 144A/Regulation S (without registration rights) deal.

Over to Malaysia, state-owned Penerbangan Malaysia Bhd set price guidance for a $1 billion offering of 10-year bonds (A3/A-) in the area of mid-swaps plus 35 basis points.

Pricing is expected on Thursday via CIMB Bhd, Citigroup and HSBC.

Adding to the pipeline, Hungary is expected to sell its previously announced €500 million offering of seven-year floating-rate notes via BNP Paribas and Dresdner Kleinwort Wasserstein next week.

Nadra Bank of Ukraine set the size of its planned three-year eurobond issue (B1//B-) at $100 million.

Dresdner Kleinwort Wasserstein and UBS Investment Bank have been mandated to manage the Regulation S sale of senior, unsecured notes.

And Kazakhstan's KazkommertsBank has commenced a roadshow for its $100 million offering of perpetual notes (Baa2/BB/BB).

ING, JP Morgan and UBS are joint bookrunners

EM up despite PPI data

The bearishness of the last two weeks appears to have softened, according to a market source.

"The market appears to be on slightly better footing," according to Enrique Alvarez, Latin America debt strategist for research firm IDEAglobal.

Tuesday morning's release of the producer price index pushed the stock market lower, but did not instigate as large as a sell-off as feared.

"There was less risk aversion bouncing around, [it] sort of played in favor of the Latin American market and emerging markets," remarked Alvarez.

Another contributing factor was that the market appeared to be over-sold, he added.

The Labor Department announced the largest monthly increase in U.S. wholesale prices in 31 years. The producer price index increased 1.9% in September due to a 7.1% hike in wholesale energy prices. Core prices, which exclude food and energy, moved up by 0.3%.

"Treasuries are almost flat to yesterday's [Monday] levels," said a sellside source. "There's supposed to be inflation here. People don't get it."

Meanwhile emerging markets has switched its focus to equities, given that Treasuries are trading at a very tight range, noted Alvarez. In the past three sessions, the yield on the 10-year note has traded within a three basis point range, unable to push in one direction.

"So I think Lat Am is contained by that to a certain extent, but in turn is happy that there is not more risk aversion feeding through the equity market in the U.S.," observed Alvarez.

During the session, the Brazil bond due 2040 added 0.40 to 119.35 bid. The Colombia bond due 2012 moved up 0.40 to 114.40 bid. The Venezuela bond due 2027 gained 0.70 to 114.05 bid.

Outside of Latin America, the Philippines bond due 2025 added 1.13 to 114½ bid. The Russia bond due 2030 gained 0.63 to 111 5/8 bid.

The better tone in equities and in volatility indicators is giving some comfort to investors. But worries over tight valuations continue to hang over the market, said the market source.

"It seems that the market was really up," added the sellside source.

"From what we hear from our desk, there's not much liquidity. It's mostly dealers covering shorts," he noted.

Additionally, the market will continue to pay attention to inflation concerns, especially given this week's busy line-up of speeches by Fed officials, said the market source.

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