Emerging market debt sees upswing on flows; Argentina outperforms

By Reshmi Basu and Paul A. Harris

New York, Feb. 3 - Emerging market debt edged higher Friday, supported by continued inflows into the asset class. Also, Argentina continued to outperform the market.

In the primary market, electricity distributor AES El Salvador Trust set preliminary price guidance for a $290 million offering of 10-year senior guaranteed notes (Baa3/NR/BBB-) at 225 basis points more than Treasuries.

Credit Suisse is running the Rule 144A/Regulation S transaction.

And Centrais Electricas Matogrossenses SA (Cemat) and Centrais Eletricas do Para SA (Celpa) set price guidance for a $100 million offering of six-year notes at 9½%.

Unibanco Securities and Merrill Lynch are leading the Rule 144A/Regulation S transaction.

EM sees no impact from job data

Non-farm payrolls numbers out of the United States proved to be immaterial to the market, said a buyside source.

The jobless rate slid to 4.7% last month, a five-year low, the Labor Department reported. Additionally, there was a 0.4% increase in average hourly wages, raising further speculation that the Federal Reserve would continue to raise rates.

In early trade, U.S. Treasury yields were dashed as the yield on the 10-year note climbed to 4.61%. But then government bonds retraced losses in the afternoon as bargain hunters surfaced. The 10-year note closed out the session at 4.53%

"Apparently there is a big buyer of 30-year bonds here and that has really caused the 30-year to outperform everything else," noted a buyside source.

"As far as EM and high yield, EM seems a little wider. But it also seems to be one of those days that you don't see that much change in price," he added.

During the session, the Brazilian bond due 2040 added 0.60 to 129.45 bid, 129.55 offered. The Peruvian bond due 2033 was unchanged at 118½ bid, 119¼ offered. The Russian bond due 2030 shed 0.13 to 111.75 bid, 111.87 offered.

Sources noted that the only noteworthy event Friday was the ongoing rally in the Argentinean discount bond, which yet again outperformed the market.

During the session, the discount bond due 2033 gained 1¾ points to 93.35 bid, 94 offered.

"Other than that, it was quiet," the buyside source observed.

Another market source said that earlier in the session, emerging market debt moved lower on the tumble in U.S. equities and Treasuries but then turned the corner in the afternoon.

The asset class closed higher on the back of rallies for Argentina and Ecuador.

The source added that the hunger for yield and short-covering were in play.

Overall, the buyside source described market sentiment as "bullish."

"For the week, we are basically unchanged on spreads, which means you have won.

"Treasuries have been softer, but [EM] is about four basis [points] of yield higher than Treasuries," he told Prospect News.

$211.3 million of inflows

Furthermore, market strength has hinged on positive flows into the market, which has given it immunity from Treasury and equity volatility, noted sources.

The week saw inflows of $211.3 million, according to Emerging Portfolio Fund Research.

"It still seems to be the same story in EM. Flows coming in - you have to be long," remarked the buyside source.

"As much as I dislike this market, I wouldn't want to short it. The momentum is so strong. Every day you don't get a correction, you get squeezed."

© 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.