Emerging market debt up in quiet session; Philippines sells $750 million in retap

By Reshmi Basu and Paul A. Harris

New York, May 9 - Emerging market debt edged higher Monday with a dearth of economic news while the Philippines reopened existing bonds to add $750 million.

In the primary market, the Republic of Philippines retapped its bonds due 2015 and bonds due 2030 (Ba2/BB-/BB).

A $250 million add-on to the 8 7/8% bonds due 2015 priced at 101 3/8 to yield 8.661%. Meanwhile a $500 million add-on to the 9½% bonds due 2030 priced at 97 7/8 to yield 9.726%.

The Philippine market traded down about ¾ of a point to 1 point on new supply news, said a source. But then it regained price traction.

"They [Philippines] did it right," said a trader. "They brought it at the size that they said they were going to bring it. They didn't try to jam the market. And the deal is doing well.

"It's the best aftermarket performing Philippine deal I can remember in a long time," he said.

Deutsche Bank AG, HSBC and JP Morgan arranged the Philippines' debt sale.

While the Philippines deal performed well, it does not erase the nervousness created by Indonesia when it issued $1 billion of 10-year bonds (B2/B+/BB-) on April 13. Those bonds traded sharply down in the secondary on too much supply.

"There's a big difference between bringing $750 million of Philippine debt, split between two issues - one in which there was a really nasty Street short in - as opposed to bloating the market with a mega-Indonesian deal that was upsized and priced at the tight end of talk," added the trader.

"The Philippines came at the tight end of the talk, but they priced it exactly where they said they would and at the size they said they would price, which is very unusual for the Philippines.

"And they split it between two issues. They did it right."

EM up in quiet news day

Overall emerging market debt was quiet since there was no economic news in the United States. And the market shrugged off signals from a defensive range-bound U.S. Treasury sector, which eased again after Friday's plunge, said Enrique Alvarez, Latin America debt strategist for think tank IDEAglobal.

"That being said, I think the double-Bs had some interesting action. You've had gains across the board" in such sovereign bonds as Colombia, Panama and Peru, he said.

In late afternoon, the Colombia bond due 2012 was spotted at 111 bid, up half a point on the day. The Panama bond due 2020 was quoted at 132 bid, up 1¼ points. The Peru bond due 2012 was spotted up 1.40 points to 116.40 bid.

"I think what this shows is that people are having a tiny bit more confidence in trying to make up the gains that we had already seen in the Brazil," added Alvarez.

Brazil was also a gainer in late afternoon trade. The Brazil C-bond was spotted at 101 3/8 of a bid, up ¼ of a point on the session while the Brazil bond due 2040 gained half a point to 115.35 bid. The Venezuela bond due 2027 was quoted down 0.10 to 99.65 bid.

The unwinding of short positions has given stability to the market, despite the recent volatility in the U.S. Treasuries market, said sources.

"There were a lot of shorts in the market, most of them have been weeded out by now," remarked Alvarez.

"There doesn't seem to be a tone where a lot of people are looking to get short," he observed.

He said that since the start of Friday's session, the yield on the 10-year Treasury note has moved out about 10 basis points to 4.28% on Monday.

"And normally, you would see a lot of people try to pile on and to short the more liquid or the more volatile credits" such as higher beta paper like Brazil, he added.

"You're just not seeing that. And I think the market is becoming more convinced that we have some underlying strength here and that we should be able to make some headway," he remarked.

Both strong fundamentals and the wide trading range for Treasuries is lending support to the market, said Alvarez. He added that the yield on the 10-year note was trading between the low range of 4.10% and 4.15% to as much as 4.40% to 4½%.

"But while we maintain that range, I don't think there is a sense that the market is going to go anywhere near tanking, he commented.

Thin trading in Asia.

As trading was light, it is difficult to make assumptions as to the strength of the Asian secondary market, remarked the trader.

"Outside of the Philippines market volumes are too thin to tell how the market is. But if you use Philippines as your acid test the market has a decent tone," he said.

"There is a lot of uncertainty behind us: the uncertainty with autos is behind us for the time being, the Fed is behind us. We have two weeks of relative economic data tranquility ahead of us.

"April is behind us and people are taking a fresh look at things. People can reload, if they want," he added.

CellC backs away

While the Philippines successfully brought a deal, South African wireless operator CellC (Pty) Ltd. withdrew its €625 million two-part bond deal on Monday citing market conditions.

The company, which is based in Benmore, Gauteng, South Africa, had been marketing seven-year first-priority secured notes (B2/BB-) and 10-year senior subordinated notes (Caa1/B-), via Citigroup.

© 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.