Emerging market trade quiet in illiquid market; Turkey prices €1 billion 12-year bonds

By Reshmi Basu and Paul A. Harris

New York, Feb. 8 - Emerging market debt was stagnant in an illiquid market Tuesday, while the Republic of Turkey came to the market for the second time this year.

With Brazil's Carnival and the Chinese New Year festivities in full swing, trading volume has trickled down.

"It's a little bit better, but it's been a very quiet day," said a buyside source. "I think most of the investors are at the JP Morgan winter conference."

During trading, the Brazil C bond was up 1/8 of a point to 102 7/8 bid while the bond due 2040 fell 0.40 to 118.80 bid.

"You had very small bout of profit-taking with Brazil leading the way," said Enrique Alvarez, Latin America debt strategist for think tank IDEAglobal.

"Is there any real substance to it? We'll know when we are back at full strength tomorrow [Wednesday]."

Other issues were mixed in trading. The Mexico bond due 2009 was down 0.05 to 121.65 bid. The Russia bond due 2030 moved up 0.187 to 106.037 bid. Turkey's bond due 2030 was up 5/8 of a point to 146 5/8 bid.

"I think most of the price action happened in local currencies, which caught up with the euro sell-off from yesterday [Monday]," noted the source.

"A number of currencies sold off versus the dollar."

Overall, the Latin American market can hang on to gains, given the supportive background, said Alvarez.

"If you look at the 10-year U.S. note, it was able to fend off a defensive three-year Treasury auction," he added.

U.S. Treasury prices fell Tuesday as the market absorbed the first round of note auctions this week. The Treasury auctioned $22 billion of three-year notes at a yield of 3.47%. The market was seesawed early on, but then stabilized.

The yield on the 10-year note was at 4.02%, down from 4.06% at Monday's close.

The U.S. government will auction $15 billion in five-year notes Wednesday and $14 billion in 10-year notes Thursday.

Additionally, Alvarez said the Brazilian real, which traded off a little Tuesday to 2.63 per dollar from 2.60, affected Tuesday's market.

"There have been no real developments at this time. There was some profit-taking off the very high levels we were at," he remarked.

Venezuela, Argentina down

In other news, the growing strain between Venezuela and the United States brought down the Latin American country's paper. The Bush administration has voiced concern over Venezuela's planned arms purchase from Russia.

The Venezuela bond due 2027 slid 0.35 to 102.90 bid.

In regards to Argentina, Italian banks said they would finance lawsuits against Argentina. The Argentine government said 35% of bondholders had participated in the debt swap. Some have heard that the number was as high as 42%, according to Alvarez.

"I was told that the calculation that involves 42% is including some sort of calculation that involves past interest - so it's not really a valid number."

"It seems to be that 35% is more indicative of what is actually occurring - which is in of itself a disappointing number."

Argentina opened the exchange on Jan. 14 and has angered bondholders by offering to pay about 0.25 per $1 face value of defaulted bonds. The swap will close on Feb. 25.

In trading, the Argentina bond due 2009 fell a quarter of a point to 31¾ bid. The bond due 2008 was unchanged at 31½ bid.

Turkey sells €1 billion 12-year bonds

In primary action, the Republic of Turkey priced €1 billion 12-year bonds (B1/BB-/BB-) at 98.337 to yield mid-swaps plus 205 basis points.

The sovereign bonds came inside price guidance of 215 basis points over mid-swaps.

The book was more than five times oversubscribed.

Deutsche Bank Securities and UBS Investment Bank ran the Regulation S offering.

On Jan. 12, the Republic of Turkey priced an upsized $2 billion global bonds due 2025 (B1/BB-/BB-) at 98.507 to yield 7.52%.

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