Venezuela beats Brazil as oil rises; Lebanon swap could add new money sale; Ecuador may call '12s

By Paul A. Harris

St. Louis, March 24 - Telephone calls to emerging markets trading desks Friday afternoon turned up news that at least two had closed by 3 p.m. ET due to extremely low liquidity.

One source said that the market had firmed Friday with the rally in Treasuries.

"Venezuela outperformed Brazil," the source commented.

Venezuela's liquid benchmark issue of 9¼% dollar-denominated bonds maturing in September 2027 went out at 126.40 bid, 126.70 offered, up a point, the source said.

Venezuela, an oil exporter, was the beneficiary of crude oil prices that rose more than $0.40 on the day.

As for Brazil, its benchmark 11% dollar-denominated bonds maturing in August 2040, which are said to be the most liquid issue in the emerging markets asset class, were spotted going out Friday at 130.10 bid, 130.30 offered, up 0.35.

New Pakistan bonds firm

One piece of the new bonds priced Thursday by the Islamic Republic of Pakistan (B2/B+), in an $800 million two-part transaction, was seen firming on Friday.

A source spotted the 7 1/8% bonds maturing in 2016 at 100.30 bid, 100.45 offered at the close.

Pakistan priced the $500 million tranche at par.

The same transaction also featured a $300 million issue of 30-year notes which priced at par to yield 7 7/8%.

Sources initially had anticipated $1.5 billion of combined issuance from Pakistan. That amount had dwindled to $1.25 billion maximum by early Thursday morning, only to be truncated to the eventual $800 million amount as the hammer came down in the afternoon.

Sources blamed the deal's downsizing on the sell-off in U.S. Treasuries that took place during the time Pakistan had its deal on the road.

The price of political noise

Beginning late last year players began warning that a raft of elections in emerging markets countries could be expected to have at least short-term negative impacts on debt prices.

As those elections approach, much of the political noise already appears to be priced into bonds, sources say.

However there are exceptions, observers add.

One of those exceptions is Peru, where presidential candidate Ollanta Humala, a leftist and a former military officer who is campaigning on a platform of higher taxes and tighter restrictions on foreign investments, has lately been seen drawing even with Lourdes Floures, a center-right lawyer who is seen as pro-business.

Peru's general elections are set for April 9.

On Friday a source spotted Peru's long bond, the 8¾% paper maturing in November 2033, at 110.40 bid, down 0.53% on a return basis.

During the emerging markets rally that took place earlier in the year those bonds had traded as high as 122.75 bid.

Political noise has also conspicuously impacted the debt of Ukraine, sources say. That country was scheduled to hold general elections on March 26.

Uncertainty erodes Ukraine debt

A source said that early Friday afternoon Ukraine's dollar-denominated 7.65% bonds maturing in March 2013 were trading at 105.50 bid, 106.50 offered, down 0.13% on the session on a return basis.

The source said that volatility has been seen in that paper ever since it topped out at 110.20 bid last September.

Viktor Yanukovich's pro-Russian Party of Regions has held a steady lead in the parliamentary race.

On Friday a market source said that the latest Ukrainian poll has Yanukovych and the Party of Regions leading president Viktor Yushchenko's center-right Our Ukraine party by 13%.

On Friday an emerging markets analyst, commenting on background, said that uncertainty in the Ukraine along with the rising fortunes of Viktor Yanukovich had the bonds maturing in 2013 trading at a mid-price of 106.25, at the weak end of their recent range.

"The Yanukovich news has upset the market, which had hoped that Ukraine could emerge as the next candidate for E.U. membership," the analyst wrote in a Friday email message.

"With Yanukovich on the rise again, the market really doesn't know what to expect in terms of the long-term E.U. outlook or even the medium-term policy outlook."

Focus on the Fed

Pressed for primary market news, Friday morning, one sell-side source said that, while there are names out there in the pipeline, people are apt to be hunkered down, waiting for Tuesday's Federal Open Market Committee meeting which will be the first one to be helmed by the new Federal Reserve chairman, Ben Bernanke.

Although the FOMC is roundly expected to hike the short term rate by 25 basis points to 4.75%, emerging markets players will be keenly tuned into what is contained in the FOMC's accompanying statement regarding a possible end to the present tightening cycle.

Should that statement impart an impression to the financial markets that there is not necessarily an end in sight it could have negative implications for emerging markets debt, sources say.

Lebanon roadshow

Only one piece of primary market news circulated during the session.

The Republic of Lebanon will begin a roadshow on Monday for an exchange offer. And subject to market conditions Lebanon may also elect to launch new money tranches.

Credit Suisse Securities Europe Ltd., BNP Paribas and Bankmed are managing the exchange.

The new paper is expected to come in dollar- and euro-denominations with maturities between 2012 and 2021.

A call from Ecuador

One source told Prospect News on Friday that Ecuador may be poised to call its dollar-denominated 12% bonds maturing Nov. 15, 2012.

The source commented that the Andean Development Corp. recently lent Ecuador $293 million for a "debt strengthening program," increasing the likelihood that Ecuador will call its bonds due 2012 at the next call date in May.

The source added that the Finance Ministry could make a partial call of the $1.25 billion issue in May and take out the remaining bonds in November using cash reserves presently estimated to be approximately $1 billion, and proceeds from a possible bond deal in the $250 million to $300 million range, which has already been approved by the government.

Ecuador's reasons for doing only a partial call in May likely include recent disruptions in the production of its crude oil, the recent volatility in the emerging markets and a reluctance to deplete cash reserves in the run-up to October's general elections.

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