Volumes down, issuance scant ahead of Fed meeting; Bradesco prices notes, Venezuela on tap

By Christine Van Dusen

Atlanta, Aug. 9 - Emerging market bond trading volumes were thin on Monday and only one new deal came to market as investors and issuers awaited Tuesday's meeting of the Federal Open Market Committee, where the policy-setting body is expected to discuss the economic outlook and potentially take action.

"I didn't have one conversation with anybody about anything but the Fed today. Nobody cares about anything else. The focus is growth and the Fed," an economic strategist said. "I think it's likely they'll do nothing, but it's 50-50. They could announce a new program or change some of their language.

"Nobody's positive one way or another. We're just waiting to find out."

Trading volumes, therefore, were "atrocious," he said.

A trader concurred. "It's extremely light, as usually summer Mondays are," he said. "I would just say it's a continuation of the same theme as Friday."

Venezuela, Argentina make moves

Venezuela, he said, traded at highs until the sovereign announced plans to issue $3 billion 12¾% dollar-denominated 10-year bonds as soon as Aug. 10.

The notes, via Credit Suisse and Deutsche Bank, can be purchased in bolivars but can be re-sold for dollars, a market source said.

"The 2027s came off probably 76 and are now 2 points lower," the trader said.

The sovereign saw "continued downward pressure on the heels of the new supply announcement," a market source said.

This came against the backdrop of Venezuela's attempt to end its dispute with Colombia. The presidents from the two sovereigns - which were at odds after Colombia accused Venezuela of harboring terrorists - will meet Tuesday to attempt to repair diplomatic relations.

Venezuela also made news on Monday when president Hugo Chavez said he would block Larry Palmer as the nominee for U.S. ambassador following his criticism of the sovereign's armed forces and alleged ties with Colombian guerillas.

Argentina, meanwhile, continued its outperformance streak. "They continue to trade higher each day," the trader said. "The Boden 2015s, which were kind of resisting at 90, are now at around 901/4."

Argentina's discount bonds were up "another ½ point, running higher from Friday's aggressive ascent," a market source said.

The sovereign is waiting for yields to drop before issuing any new debt, a market source said. The yield on its benchmark 2017 bonds is now about 10%, the point at which many market-watchers expected Argentina would sell notes. But now the sovereign is hoping for a yield of 9% or lower.

Russia trades up

Overall the market is "looking for offers across the board in sovereign names, the more illiquid ones," the trader said.

Colombia, Mexico and Peru were "mostly unchanged and very quiet, volume-wise," the market source said.

Russia was trading up on Monday, even as the country faced a searing heat wave and choking smoke from forest fires. "Russia is firm today," he said. "It's up a quarter- or half-point."

The reason these names were trading well on Monday, he said, was not necessarily due to an improvement in risk sentiment.

"It's a question of perspective," he said. "I think it's a function of dealers not being particularly long in the last month or two. At every turn accounts are taking paper, so dealers are flat to short. I don't think anyone would say it's necessarily about value. To me it's more about too much cash facing too few assets. There's a fair amount of supply, more sovereign than corporate, and too much cash out there."

Bradesco prices notes

The primary market saw just one new deal, a drive-by from Brazil-based lender Banco Bradesco SA (Cayman Islands branch). The issuer priced $1 billion 5.9% unsecured subordinated tier 2 notes due Jan. 16, 2021 at 99.622 to yield 5.95%, an informed market source said.

Bank of America Merrill Lynch, HSBC, JPMorgan and Bradesco BBI were the bookrunners for the Rule 144A and Regulation S deal, which included an option to exercise an up to 10% greenshoe during Asia business hours.

The deal was whispered at a yield in the "6% area," a source said.

Proceeds will be used to replenish tier 2 capital and for general corporate purposes.

Also on Monday, Hong Kong-based integrated iron and steel manufacturer China Oriental Group Co. Ltd. announced plans to issue senior notes in a Rule 144A and Regulation S offering, according to a company filing.

The notes will be issued pending market conditions.

This follows the company's postponement in May of a dollar-denominated issue of senior notes via Deutsche Bank and ING. Proceeds from that deal were to be used to fund working capital, to fund capital expenditures and for general corporate purposes.

Other details of the new offering were not immediately available.

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