Oil producers slide as crude prices plunge; India's NTPC to issue dollar bonds

By Reshmi Basu

New York, Feb. 15 - Emerging market debt slipped Wednesday as the drop in oil prices chipped away at Ecuador and Venezuela. Nonetheless, Wednesday's main event, the much-anticipated testimony by new Federal Reserve chief Ben Bernanke, had little influence on the asset class.

In the primary market, India's NTPC Ltd. (Baa3/BB+/BB+) mandated Barclays Capital and Deutsche Bank to manage a dollar-denominated 10-year bond issue.

An investor roadshow is scheduled to start on Feb. 18, making stops in Dubai, Singapore, Hong Kong, and London.

Moving over to Kazakhstan, Nurbank JSC disclosed plans to sell $200 million of eurobonds on Wednesday.

The disclosure appeared in a copy of minutes from a prescheduled general shareholders meeting held on Dec. 31, 2005, and released Wednesday to the Kazakhstan Stock Exchange.

No surprises from Bernanke

In congressional testimony, Bernanke said that the U.S. economy was back on track but suggested that more interest rate hikes may be needed to curb inflation.

His comments cemented market consensus that the central bank has at least one to two more rate tightenings ahead.

It has become a foregone conclusion that the Fed will lift rates to 4.75% from 4.50% at its next meeting on March 27-28, said sources.

And the market is also leaning towards another hike to 5% by the middle of next year.

In response to Bernanke, U.S. Treasuries were mixed.

Emerging market investors took the opportunity to bank some profits, as the yield on the 10-year Treasury note hovered around 4.60% during most of the session.

"I don't think Mr. Bernanke has injected anything new into the market. It's just the normal uncertainty and data dependency that we face going forward," remarked Enrique Alvarez, Latin America debt strategist for think tank IDEAglobal.

"The market has taken advantage of that to take a quarter of a point off the table in Brazilian credits," he said.

Oil producers clipped by plunging crude prices

Oil producers such as Ecuador and Venezuela were clipped Wednesday as oil prices dipped below $59 per barrel.

One source said that Wednesday's session was driven by commodity weakness as Venezuela emerged as the day's underperformer. That in turn created a spillover effect for other credits.

During the session, the Venezuelan bond due 2027 lost 1.05 to 125.40 bid, 125.60 offered. The Ecuadorian bond due 2012 shed 0.50 to 103.50 bid, 104 offered.

The Brazilian bond due 2040 lost 0.10 to 131.85 bid, 131.95 offered.

Furthermore, the source added that last week's rally in Brazil, in which spreads tightened by 30 basis points on Friday, appears to have taken away the short base from the market.

Late Thursday, Brazil said it would buy back up to $20 billion in Brady bonds and short-term debt.

Overconfident investors in Peru

Peruvian presidential candidate Lourdes Flores kept a 10 percentage point lead over leftist candidate Ollanta Humala, according to a poll released on Sunday. Nevertheless, Alvarez warned that investors are paying far too much attention to polls and not enough attention to history.

"Investors are overconfident in Peru," he said, cautioning them not to take polling results at face value since these polling firms have been shown to be wrong on numerous occasions.

"Peru is a country that has a very difficult social make-up," which poses difficulties in predicting how the country's population will vote in April, he noted.

"I think they [investors] need to pay attention not to the polls but to past history when there is a right-wing frontrunner in the polls.

"No one from the right wing has won in Peru since 1980."

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