Emerging market debt unchanged on U.S. job data

By Reshmi Basu and Paul A. Harris

New York, Sept. 1 - Emerging market debt was mostly unmoved Friday amid thin trading as U.S. job data arrived in line with market expectations.

The release of non-farm payroll numbers capped a week of positive economic reports, which helped quell fears that the U.S. economy will slow down by more than originally believed. The week before, market tension picked up on weaker than expected U.S. housing data, which sent spreads wider across the emerging market asset class.

But for now, investors have become more at ease with the U.S. growth picture and the interest rate story. And that has helped build up positive sentiment for emerging markets debt.

Adding to the supportive backdrop, Moody's raised Brazil's credit rating on Thursday by one notch to Ba2, two levels below investment grade.

Meanwhile Friday morning saw some profit taking ahead of the jobs report. One source added that the benchmark Brazilian bond 2040 was yet to trade.

But then the market saw a slight pick up following the data, in which the Labor Department reported that 128,000 new jobs were added.

However, trading volumes remained light in keeping with the holiday mode and spreads were mostly unchanged, noted market sources.

During the session, the Brazil 2040 bond was unchanged at 130.60 bid, 130.70 offered. The Philippine bond due 2025 added 0.25 to 131.25 bid, 131.75 offered. The Russian bond due 2030 was unmoved at 111.25 bid, 111.50 offered.

Market sentiment will be fully realized once the market returns to full force following the Labor Day holiday on the United States, according to a trader.

Nonetheless, August, which is traditionally the least active month of the year, saw positive returns. The JP Morgan EMBI+ index gained 2.60% on the month. Argentina was the top performer on a monthly basis and also has been the best performer so far in 2006. Meanwhile Ecuador was the worst performer in August on election uncertainty.

Primary issuance

The past week saw the primary market pipeline finally come to life, after a prolonged hibernation. Two more deals were added to the docket Friday.

On the sovereign side, the Republic of Hungary announced on Friday that it has mandated BNP Paribas and Dresdner Kleinwort to lead the sale of €500 million of six-year floating-rate eurobonds.

The launch and pricing of the deal are expected in the second half of September, according to the Government Debt Management Agency Ltd. (ÁKK Rt.).

Proceeds will be used for general financing purposes.

Hungary's last euro-denominated bonds came in a €1 billion issue of 3½% notes maturing in July 2016 priced on Jan. 10, 2006 at 99.437, giving a 15 basis point spread to mid-swaps.

On the corporate side, the Development Bank of the Philippines will conduct a Sept. 6 through Sept. 11 roadshow in Singapore, Hong Kong and London for a dollar-denominated offering of hybrid tier 1 securities.

Barclays Capital and Deutsche Bank have been mandated to lead the Regulation S transaction.

Moody's ups Petrobas

In other news, Moody's upgraded the foreign-currency corporate rating for Brazil's Petroleo Brasileiro SA to Ba1 from Ba2, a change that follows on from the upgrade to Brazil's rating on Thursday.

The oil company saw little movement along its yield curve. In trading, the Petrobras bonds due 2007, 2008, 2011, 2014 and 2018 were spotted unchanged on a price basis. However the bond due 2013 edged up by 0.13 to 117 bid, 118 offered.

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