Emerging market debt sees muted trade; Bank of India to sell new bonds

By Reshmi Basu and Paul A. Harris

New York, Aug. 21 - Emerging market debt saw subdued trading Monday.

In the primary market, Bank of India is expected to issue a dollar-denominated offering of 15-year upper tier II bonds.

The issue is expected to come with 10 years of call protection.

A market source said that the issue should come 40 to 50 basis points behind that of the recently placed 7¼% upper tier 2 bonds of UTI Bank Ltd. (Baa3/BB-). That Indian financial institution placed its $150 million issue at Treasuries plus 175 basis points on Aug. 4.

Monday's session saw light trading volumes in keeping with the summer session.

August has traditionally has been the least active month of the year as many market participants take off for vacation and trading desks are reduced to skeleton crews.

Additionally in the absence of pertinent U.S. economic data on Monday, the asset class saw little action, according to market sources.

U.S. equities ticked lower while U.S. Treasuries rallied, as investors sought safe-haven instruments on the back of news of Iran's refusal to halt its uranium enrichment program. As a result, oil prices jumped $1.31 to close at $72.45 per barrel. Higher oil prices renewed concerns as to the health of the U.S. economy. The Dow Jones Industrial Average index fell 36.43 to end at 11,345.05.

At session's end, the JP Morgan EMBI Global index was up by 0.04% while spreads widened by one basis point versus Treasuries.

"Trading was quiet," noted a trader. "There weren't drivers to give the market direction one way or another," he added.

During the session, the benchmark Brazilian bond due 2040 was down 0.05 to 130.35 bid, 130.40 offered. The Colombia bond due 2033 added 0.75 to 136.50 bid, 137.50 offered. The Venezuelan bond due 2027 was higher by 0.20 to 124.20 bid, 124.60 offered.

The Latin American region also saw light liquidity on the local front. Mexico's currency rallied to USD/MXN 10.797, keeping in line with the rest of the region's positive performance.

Meanwhile Russia saw its component of the EMBI Global index tighten by one basis point on the government's announcement that it moved funds from the stabilization fund for the entire repayment of its Paris Club debt.

During the session, the Russian bond due 2030 added 0.25 to 110.875 bid, 111.125 offered.

Since this is a relatively quiet week in terms of major U.S. economic releases, the asset class is expected to see little volatility, noted a market source.

However, the market will pay close attention to this week's upcoming speeches by Federal Reserve officials for any indication into the direction of monetary policy. On Tuesday, Atlanta Fed president Jack Guynn and Chicago Fed president Michael Moskow are scheduled to speak.

And on Friday, chairman Ben Bernanke is slated to talk.

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