Investors' love affair with Brazil continues; Petrobras sets price guidance

By Reshmi Basu and Paul A. Harris

New York, Sept. 7 - The summer lull was officially over in emerging markets as investors returned in a buying mood.

"The tone is upbeat," said a trader. "People are back and ready to buy."

"Everyone is pretty confident that the Fed will stay with the 'measured pace,'" he added.

And investors were in the mood for Brazil. The C bond added three quarters of a point to 98.375 bid while the bond due 2040 rose 2.1 points to 108.65 bid.

One reason why investors are soaking Latin American paper is because in the short term the environment in the U.S. Treasury market appears to be benign, according to Enrique Alvarez, Latin American debt strategist for think tank IDEAglobal.

"You have overwhelmingly positive economic numbers in Brazil. And that seems to have led the trend here. People are riding and getting on Brazil," said Alvarez.

"There has been renewed talk from the local market on issuance, but I think that probably will be very well received at this point in time."

Furthermore, the interest rate environment is positive, given that the Fed is expected to raise rates by a quarter percentage at its September meeting and may hold off raising rates again until after the U.S. presidential elections, according to Alvarez.

"It's pretty positive scenario out there, with Brazil just leading the way up," he added.

Venezuela gains on Moody's upgrade

Venezuelan paper edged higher on news of a ratings upgrade from Moody's Investors Service. The country's bond due 2027 added 1.05 points to 94.3 bid.

The ratings agency said it "upgraded Venezuela's country ceiling for foreign currency bonds and notes to B2 from Caa1 to reflect the authorities' determination to service the public debt in full and on a timely basis despite severe stress," in a news release.

"Venezuela was acting pretty sluggish early on. And then you had a Moody's upgrade - two notch increase," said Alvarez.

"It's sort of bringing it up to par with what S&P has already done."

On Aug. 25, Standard & Poor's raised the country's rating to B from B-.

"Venezuela is trading pretty tight, although oil is a very supporting element for Venezuela," added Alvarez.

"But if you look at the Venezuela/Brazil differential, I believe it is a little too tight. "It's pretty much near the top and has advanced a lot."

Investors eye Mexico CPI

Looking ahead in Mexico, investors will be watching the release of Thursday's CPI.

"That will set the tone for the next policy decision of the Mexican Central Bank," said Alvarez.

"It's a different crowd that trades Mexico. It's an investment-grade crowd. It's up slightly on the day [Tuesday]. It's up between a quarter and a quarter of a point."

Meanwhile, Turkey's bond due 2009 tightened 25 basis points to 298 basis points during Tuesday's session and Russia's bond due 2030 widened five basis points to 288 basis points."

Petrobras guidance

In primary news, price guidance on Petrobras International Finance Co.'s benchmark sized 10-year bond (Ba2) has been set at 7 7/8%-8%.

The deal is expected to price mid-day Wednesday.

Morgan Stanley and Bear Stearns & Co. will run the books for the registered offering.

The prospective issuer is a subsidiary of Brazil's state oil company.

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