World Cup games, Greece concerns lead to thin volume, scant new issuance; GEO sells notes

By Christine Van Dusen

Atlanta, June 25 - Emerging market bond trading volume and new issuance were thin on Friday, owning to the FIFA World Cup, as well as not-so-great U.S. economic data, the quieter but still ongoing European debt crisis and a wait-and-see posture about the G20 meeting.

While the consumer sentiment index rose a better-than-expected 76.0 in June, the U.S. Commerce Department revised downward the expectations for first-quarter gross domestic product.

Meanwhile, Greece's five-year credit default swaps hit an all-time high amid concern that austerity-related strikes will hurt tourism. Those issues, in addition to the fact that many investors are sitting on the sidelines until after the G20 meeting, led to "incredibly light volume" on Friday, a New York-based market source said.

GEO prices notes

In the midst of all this, one issuer brought a deal to market.

Mexico City-based homebuilder Corporacion GEO SAB de CV priced $250 million 9¼% notes due 2020 at 98.409 to yield 9½%, or Treasuries plus 641.8 basis points, according to a market source.

Citigroup, Morgan Stanley and Santander were the bookrunners for the Rule 144A and Regulation S deal, the proceeds of which will be used to refinance current debt.

"It's up quite a bit," the New York source said at mid-afternoon. "It's up about a point and a half."

Also on Friday, Moscow-based lender Vnesheconombank planned a roadshow for Monday to Wednesday for a proposed eurobond via Barclays, Citigroup, HSBC, Societe Generale, ING, Troika Dialog and VTB Capital.

In general, though, the primary was slow on Friday. That's expected to remain the case for the duration of the season, said Enrique Alvarez, debt strategist with think tank IDEAglobal.

"We're close to the summer doldrums," he said.

Supply lacking

For bonds in general, "there's not a whole lot going on," Alvarez said. "The week has mostly wound down. We had some upside early in the week with some relative high levels, but we've come off of that. The market's in a reactive phase, reacting to less-than-optimistic data on the U.S. side."

And the European debt crisis "has not totally gone away," he said. "It's quiet for now but we don't know what other skeletons are in the closet or what other change of perception is ahead. That all serves as a sort of impediment to issuance."

Indeed, with just a few issues pricing during the week, there's been a "lack of supply," the New York-based source said. "I've been doing this for 15 years and this is the slowest month I've ever had. No other month even comes close."

So investors continue to sit on cash, he said. "There's a fair amount of cash out there. With the equity market down roughly 5% from the highs or maybe a little bit more, markets are well bid."

Investors are just looking "to make some returns," he said. "With the U.S. Treasury market well bid and interest rates low for a long time, people want the safety of fixed income."

In order for the market to sell off significantly, "you need another leg down in the equity markets," he said. "We just seem really more range-bound for now. But we'll see what happens over the weekend. A lot of people are on the sidelines, waiting for the G20 meetings."

But they're still keeping an eye on the "better credits in EM, in Latin America, like Brazil, Mexico, Peru," he said.

LatAm in focus

Another Latin American name, Argentina, was "somewhat softer" on Friday, Alvarez said. "And then the rest of the curve looks pretty flattish. Argentina has been a protagonist throughout the week."

Earlier in the week the sovereign had been somewhat stronger on the news that its $18.3 billion debt-swap - which offered a second exchange opportunity to bondholders who didn't participate in a 2005 swap - attracted 66% participation.

But given that the initial goal was closer to 75% participation, "66% was not overly impressive," Alvarez said. "Since then they've been holding at mid-range. It hasn't gone back to lows. It's 67.5 bid for the discount bond, slightly higher on the week."

Venezuela was still dealing with volatility on Friday, he said. "In Venezuela some days the risk-on trade comes back and people essentially stick their toes in the water. Then you get the negative national headlines out of Caracas and that spooks people."

So the Venezuela 2027 bond was "69 bid today, up a half," he said. "It's been very volatile."

He's also watching Colombia, which has seen "firm" bond prices over the last few days due to post-election goodwill, he said. "So on the sovereign side there may be something in the pipeline," he said. "It makes perfect sense that they might take advantage."

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