Investors stay cautious due to mixed U.S. data; CSN, Poland price notes; Gerdau on tap

By Christine Van Dusen

Atlanta, Sept. 16 - Mostly better economic data from the United States managed to push Treasury yields higher on Wednesday, but issuance slowed and risk appetite didn't improve as investors focused more on the negative news and stayed on the sidelines.

"It's really a mixed picture out there," said Enrique Alvarez, debt strategist with think tank IDEAglobal.

First-time jobless claims fell, but remained high. Producer prices rose, but only 0.4%. And regional manufacturing activity may have contracted at a slower rate so far this month, but it still contracted.

So while the emerging markets saw "spread tightening across the board" - with Panama down 15 basis points, Argentina down 13 bps and Brazil down 10 bps - "there's very little conviction out there," said Nick Chamie, global head of emerging market research for RBC Capital Markets.

"EM debt hasn't seen yields widen out in the same way that Treasury yields have, so generally we've seen a little bit of spread tightening across the board," he said. "A lot of that will be the Treasuries moving and bond prices didn't, but Treasuries backed up so there's spread tightening."

Still, investors remained cautious, he said.

"With the U.S. data the way it is coming in, so mixed, and the Philly Fed coming in weaker than expected and initial jobless claims a little better, that kept people on the sidelines. It's a trader's market as opposed to an investor's market. Trends are so short and volatile. I think we'll be stuck like this for a couple of months."

CSN, Poland price notes

A few deals came to market on Thursday. On the list was Brazil-based steel subsidiary CSN Islands XII Corp.'s $1 billion 7% perpetual notes, which priced at par via Bank of America Merrill Lynch, Credit Suisse, Deutsche Bank and Morgan Stanley in a Rule 144A and Regulation S offering.

The notes, guaranteed by Brazil's Companhia Siderurgica Nacional, were whispered at the high 7% area yield.

Proceeds will be used to prepay $750 million in outstanding guaranteed perpetual notes issued in 2005 by CSN Islands X Corp. and for liability management.

Also on Thursday, the Republic of Poland priced €1 billion 4% notes due March 23, 2021 at 99.884 to yield 4.016%, or mid-swaps plus 120 bps, a market source said.

Barclays and ING were the bookrunners for the deal.

And telecommunications firm Telemovil El Salvador SA priced $450 million 8% notes due Oct. 1, 2017 at 98.684 to yield 8¼%, according to a market source.

Morgan Stanley, Standard Bank and RBS were the bookrunners for the Rule 144A transaction, which includes a make-whole call at 50 bps.

"I think there's some heavy pipeline," Chamie said. "It just didn't all come today."

Gerdau, others move forward

Other issuers took steps toward the market, including Brazil-based steel maker subsidiary Gerdau Trade Inc., which has mandated HSBC, Santander and JPMorgan as bookrunners for a benchmark-sized issue of dollar notes, according to a company announcement.

The Rule 144A and Regulation S offering is guaranteed by parent Gerdau SA, Gerdau Acominas SA, along with Gerdau Acos Longos SA, Gerdau Acos Especiais SA and Gerdau Comercial de Acos SA.

Also tapping bookrunners was Hong Kong's Cheung Kong Infrastructure Holdings Ltd. The property development company has tapped JPMorgan for a potential dollar-denominated issue of perpetual notes, a market source said. A roadshow commences Friday in Asia.

And Brazil-based pulp and paper company Suzano Papel e Celulose SA set price talk for its planned dollar-denominated issue of 10-year notes at a 6¼% area yield, a market source said.

Bradesco BBI, Itau and JPMorgan are the bookrunners for the Rule 144A and Regulation S offering.

Privat, Ukraine could resume plans

Also on Thursday, Ukraine-based commercial lender Privat Bank resumed plans for a benchmark-sized dollar-denominated issue of notes due 2015, a market source said.

The company has hired HSBC and UBS to manage the deal. The original deal, announced in May, was postponed due to market conditions.

The Ukraine sovereign was also on the market's mind on Thursday, with sources whispering about possible plans for five- and 10-year bonds.

Also in the works is Russia-based private lender Alfa Bank's dollar-denominated benchmark-sized notes due 2017, which are being whispered to yield 8% to 8¼%, a market source said.

Deutsche Bank and UBS are the bookrunners for the deal, which finishes a roadshow this week.

And Turkey-based business conglomerate Yasar Holding AS is looking at issuing €200 million 9½% notes due 2011, according to a company filing.

The bookrunner for the deal is Barclays Capital, which also is expected to provide a dollar-denominated loan to Yasar and then sub-participate the loan to Willow No. 2 (Ireland) plc. Willow No. 2 will sell the new notes in order to fund the purchase of the sub-participation in the loan.

Venezuela 'complicated'

The market also awaits the planned $2 billion bond issue from Venezuela-based oil company Petroleos de Venezuela SA (PDVSA).

In the meantime, PDVSA was in the news due to fires at some of the company's storage facilities. "That brings out the fact that there's a lack of maintenance and investment and an absence of skilled personnel there," a market source said.

Venezuelan bonds, in general, currently "appear cheap," according to a Barclays Capital report, with "actual cheap valuations" and "a strong capacity to repay." But there remain concerns "about the technicals of this credit."

Venezuela has long been a politically complicated country, and "the political headline news is going to become more complicated and more negative as we go ahead," Alvarez said. "That's not a surprise. But given the environment and rumors of quantitative easing, Venezuela turns into a viable play on a pure yield basis. That's what people ultimately turn to, and look for."

Venezuela's benchmark 2027 bond, which was at 66¾ bid on Tuesday, was at about 69 bid on Thursday.

Sources also were keeping an eye on the recent $50 million and $500 million add-ons to the Federative Republic of Brazil's $1.775 billion 5 5/8% notes due 2041, which both priced at 106.407 to yield 5.202%.

"The concession there to buyers is only about 4 bps, so that was another very positive signal that people are still very willing to accumulate Brazil risk, even at the far point of the dollar curve," Alvarez said. "It's very, very positive."

The sovereign "didn't wait for absolute stability," a market source said. "There have been better moments to issue but nobody was coming to the plate."

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