U.S. tax deal raises risk appetite; IFH Peru plans notes; Argentina could issue notes

By Christine Van Dusen

Atlanta, Dec. 7 - Concerns about the United States' debt picture - along with news that Ireland is taking steps toward passing a severe budget - sent Treasury yields skyrocketing and inspired a rise in risk sentiment on Tuesday.

President Barack Obama's potential tax deal with Republicans, which would extend tax cuts for the wealthy, gave risk assets a strong initial boost, according to an RBC Capital Markets report. But "the positive mood eased somewhat throughout the New York session as U.S. Treasuries sold off and the U.S. dollar started to gain momentum," according to an RBC Capital Markets report.

The JPMorgan Emerging Markets Bond Index Plus spread started the day 9 basis points tighter before finishing the day down 19 bps. Argentina ended Tuesday 23 bps tighter, while Venezuela was tighter by 40 bps.

That nearly offset the back-up in Treasury yields "to keep prices only down slightly on average," RBC said.

Still, Argentina's 2033 bond was up by about 1 3/8, with the bid price seen at 91 7/8.

"Venezuela's 2025 is up about 21/2, but that's an illiquid credit," a market source said. "The 2027s are up a dollar at 74¾ bid, though Venezuela is a laggard."

IFH Peru plans notes

Lima-based financial services company IFH Peru Ltd. is planning a $100 million tap of its 8 5/8% bonds due 2019, according to a market source.

Barclays Capital and IMT Trust are the bookrunners for the deal, which could price as soon as this week.

This follows the Commercial Bank of Qatar's announcement of the pricing of CHF 275 million 3% notes due Dec. 7, 2015 at 99.749, a market source said.

BNP Paribas and Credit Suisse were the bookrunners for the issue, the first by a Qatari bank in Switzerland. Proceeds will be used for general funding purposes, according to a company announcement.

Market-watchers were also talking on Tuesday about a possible issue of three-year renminbi-denominated bonds from Hong Kong-based hospitality company Galaxy Entertainment Group Ltd., which is on a roadshow with Bank of America Merrill Lynch, BOC International, HSBC and UBS. A Regulation S deal could follow.

Sovereigns on sidelines

Otherwise, it seems that issuance is generally on hold, a market source said.

Enrique Alvarez, debt strategist for think tank IDEAglobal, agreed and pointed to Colombia as an example.

"We already have pronouncements from Colombia that they are fully funded, looking into next year," he said. "I don't think the demands for funding are that great to start with."

Latin American sovereigns, in general, have been "quite restrained," he said.

"I would not expect them to bring new deals in an environment where we have potential turbulence from Ireland, Portugal and Spain. And on the back of that we have rising Treasury rates. It would not be technically favorable for them to tap the markets under those conditions," he said.

"It's also the second week of December, and typically Latin America after the 15th sees flows dry up, because they take a long vacation period. If you have diminished liquidity, that adds to the elements that would not favor issuing in this type of environment," he said.

Argentina in focus

The market was also keeping a close eye on Argentina's plan to exchange $335 million defaulted Brady bonds in an effort to secure lower borrowing costs by ridding itself of the last debt from the sovereign's restructuring in the 1990s.

Some sources believe this could encourage Argentina to issue new debt.

"It might," Alvarez said. "This is more of a technical issue related to how many different litigants are still out there and whether they're willing to take the bait of essentially tendering their Brady bonds. The real issue on the table is that the authorities have said, repeatedly, that they will not tap the markets in 2011. So that sort of derails the argument."

Argentina tends to stick by its word on issuance, unlike Venezuela, which has been known to promise no new deals and then come out with notes. The sovereign's energy company, Petroleos de Venezuela (PDVSA), is looking at the possibility of reopening its 2017 8½% bond.

"Venezuela has a very large shortage of dollar flows in the local economy and thus has the obligation and safety valve they must employ continuously to access dollars and find relief for excess liquidity," Alvarez said. "It's not the same with Argentina. There's not a dollar shortage within that economy."

With Argentina, the consideration is timing, he said.

"The decision has to do with liability management and timing the market correctly with regard to external benchmark rates," he said. "That may push them at some point in time."

It's possible the sovereign already missed a good window of opportunity, another market source said.

"They may have mistimed what was going on in the international arena with U.S. Treasuries and lost an opportunity to come back more efficiently," he said.

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