Emerging market debt flat to a tad lower with U.S. Treasuries; Lebanon offers 3 new bonds in exchange

By Reshmi Basu and Paul A. Harris

New York, April 3 - Emerging market debt saw a quiet session Monday as the asset class tracked U.S. Treasuries. Meanwhile Ecuador and Peru emerged as two of the biggest losers on the day.

In the primary market, The Republic of Lebanon plans to issue three new bonds in exchange for $2.49 billion of existing debt, which will mature later this year. New bonds are also expected to be sold for cash.

The issuance will be comprised of two tranches of dollar-denominated bonds while the third tranche will include euro-denominated bonds.

The government will issue a minimum $400 million in eight-year bonds with a coupon of 7 3/8% as well as a minimum of $400 million in 15-year bonds with a coupon of 8¼%. Additionally, the two tranches of dollar-denominated bonds will be issued under Rule 144A/Regulation S structures.

The deal will also include a six-year offering of euro-denominated bonds with a coupon of 5 7/8%. This tranche will be issued under a Regulation S structure.

The exchange offer is scheduled to expire on April 5. The notes will price on April 6. The settlement date is expected to be April 12.

Credit Suisse, BNP Paribas and Bankmed are leading the transaction.

Also in primary news, Thailand's state-controlled TMB Bank Public Bank Ltd. has mandated Barclays Capital for a dollar-denominated bond offering (issuer's ratings Baa2/BBB-).

The issue will be structured as hybrid tier I bonds.

Indonesia up in Asian session

Asia's session on Monday saw Indonesia open stronger, noted a market source. Yields were down about three to seven basis points across the country's sovereign curve with shorter-dated bonds seeing better bids.

Good news on the inflationary front gave more support to the country later on in the session, added the source. Inflation numbers came in less than expected, which helped yields fall another 12 to 15 basis points across the curve by the close of Asia's trading session.

Moving to Malaysia, the country's bonds were weaker at during Monday's trading session in Asia. Bonds were sold on fears that the central bank would raise rates.

On to the New York session, a trader described the session as "quiet" as the market tracked U.S. Treasuries.

"The market is sort of at a standstill," he noted. "The market is readjusting to higher levels, looking to see where Treasuries finish off."

With yields on the 10-year note hovering around 4.90%, investors were sidelined during a muted trading session, noted another trader.

The 10-year note ended the session at 4.87%, but not before it pierced 4.90% during the day.

"Even though Treasuries are entering a new range, EM is hanging right in there," added the trader.

"The market was pretty much closed flat to lower today [Monday], not bad considering the 10-year."

Additionally, the second trader said he expects trading to be subdued heading into Friday's release of non-farm payroll numbers when the market will be looking for clues into future Fed action.

Comfort with Brazil, discomfort with Peru

Monday's session was steady, remarked sources. Brazilian bonds were a little lower, but more importantly, investors are comfortable with the country's new finance minister Guido Mantega, according to an investor.

During the session, the Brazilian bond due 2040 lost 0.10 to 128.20 bid, 128.25 offered.

Over to Peru, bonds fell on news that leftist Ollanta Humala took the lead in Sunday's opinion polls with a forecast 32% of the vote. Center-right candidate Lourdes Flores is in second position with 26%.

The Peruvian bond due 2012 shed 0.25 to 112 bid, 113 offered while the bond due 2033 lost 0.50 to 111 bid, 111½ offered.

Ecuador's bonds also came under pressure. The country's bond due 2012 lost 0.15 to 101.60 bid, 102.10 bid. The bond due 2015 shed 0.75 to 104.25 bid, 105.25 offered while the bond due 2030 gave up 0.80 to 100.05 bid, 100.70 offered.

And finally moving to the Philippines, investors are focusing on the country's plan to retire Brady bonds. The country's bond due 2015 added 0.25 to 113.125 bid, 113.87 offered while the bond due 2025 gained 0.25 to 129.75 bid, 130.25 offered.

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