Emerging markets: Issuance muted on Hungary woes, U.S. payroll data; SingTel Optus prices

By Christine Van Dusen

Atlanta, June 4 - Emerging market issuers and investors remained in wait-and-see mode on Friday amid new concerns about the European debt crisis - this time with a focus on Hungary - and lower-than-expected payroll numbers from the United States, market sources said.

"It's been a quiet morning but generally weaker," a London-based trader said.

Said a debt portfolio manager: "It's a continuation of the risk-avoidance trade. The negative global backdrop is not necessarily a favorable environment for emerging debt."

After a Hungarian official's Thursday remarks that the sovereign is dealing with an economic crisis similar to that of Greece, Hungary's central bank tried to minimize the resulting damage by saying the country's economy is improving. But in the meantime, the yield on 10-year Treasuries suffered its biggest fall in two weeks.

The fact that Hungary would compare itself to Greece is "puzzling in this kind of environment," the portfolio manager said. "It's like if someone were comparing themselves to Argentina in 2000. Why would you do that? No good can come from that.

"But I think people are sort of speculating that the new government wants to blame the situation on the outgoing administration. It's a tactic they're taking, but it doesn't seem to be all that successful."

Wider, weaker day

Hungary's currency took a beating, declining about 4% relative to the dollar, as did some others: the Polish zloty was down almost 3% and the Brazil real was down more than 2%.

"Concerns over Hungary have sort of exaggerated the moves somewhat," the London trader said.

Friday also saw the release of the U.S. Labor Department's report on nonfarm payrolls for May, which showed that employers added a smaller-than-expected 431,000 jobs - the majority of which were temporary hires for the 2010 census - in the month.

"With the disappointing payrolls numbers we're wider and weaker across the board," the London trader said.

Another London-based source had a stronger reaction to the day's activity: "It was carnage," he said. "It all added up and was a shocker for a while."

Spreads, he said, "were 10 to 20 basis points wider" before bouncing back somewhat as the European close neared.

Re-pricing of risk

Despite all this, some credits remain "in pretty decent shape," the portfolio manager said. "Countries and companies will continue to chug along and slog along, and some of them are continuing to post very good numbers."

What's happening right now, the manager said, is a "re-pricing of risk. I'm not sure we've decided what the appropriate level is with different sources of risk. It's a process of discovery that we're undergoing at this stage."

Argentina, and the $738 million 8¾% seven-year fixed-rate notes it priced Wednesday at 90.11 to yield 10.8%, is a "perfect example," the manager said. "There's confusion on where it should trade. They were all over the place for a while. They still are. They were at the low 80s, maybe 81 or 83. The high yesterday was closer to the mid-80s. It's been all over the place."

Primary quiet again

New issuance remained stalled on Friday "due to market volatility," the London-based market source said. He barely took note of the recent pricing of Singapore-based SingTel Optus Pty Ltd.'s HK$1 billion 3 7/8% notes due 2020 via Barclays Capital.

Most issuers aren't anxious to jump into the fray in this type of volatile environment, the portfolio manager said.

"Everyone is sort of fearful of going back to the '08-type environment where, if a few things go wrong, we end up back in the type of environment where there is a global banking paralysis," the manager said. "It doesn't matter what you have. As long as it has a risk address, it will suffer. So I think people are very concerned about that potential outcome."

Currently there is a "huge pipeline" of deals that could come "as soon as the markets open up again," the manager said. "That has to weigh on valuations, because as soon as you reset, along comes a new issue and it kind of re-prices all your comps, so that's kind of hard. It's almost like a process we're going through."

Joining the pipeline is Uruguay, which is planning to issue about $1 billion in debt in 2011, a market source said. The notes could carry a maturity of about 20 years.

Inflows return

For the week ended June 2, emerging market bond funds saw inflows of just $76.8 million, according to data tracker EPFR Global. That's an improvement from the previous week's outflows of $343 million but still a far cry from earlier levels.

SingTel Optus prices notes

Singapore Telecommunication Ltd.'s wholly owned subsidiary, SingTel Optus, priced HK$1 billion 3 7/8% notes due June 10, 2020, according to a company announcement.

Barclays Capital was the bookrunner for the notes, which were issued under SingTel's €2 billion medium-term note program announced in July 2009.

Proceeds will be used for general corporate purposes.

SingTel Optus is a broadband service provider.

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