Emerging market paper slides on profit taking, oil concerns; Brazil down

By Reshmi Basu and Paul A. Harris

New York, Oct. 13 - Emerging market paper was softer Wednesday as investors took profits on growing oil concerns.

"Everything is pretty much down across the board," said a trader.

Brazil led the downturn. The C-bond was down 0.688 to 99 5/8 bid while the bond due 2040 lost 1.8 to 113½ bid.

Meanwhile Russia's bond due 2030 was bid at 98.812, down 0.313. The Venezuela bond due 2027 fell 1.10 to 102 bid. The Mexico bond due 2026 widened 8 basis points to 220 basis points. And Turkey's bond due 2009 moved out eight basis points to 284 basis points.

Overall, the JP Morgan EMBI+ Index slid 0.35%. Its spread to Treasuries widened eight basis points to 404 basis points.

"Trading was pretty quiet for most of the day," said a second trader.

But the market took a hit in the afternoon. The Brazil bonds due 2040 were up over 114½ before falling to 113¾ at 3 p.m. ET, according to the trader.

"There's no major news out there,' said the trader. "Maybe the market was a little bit overboard and now the sellers are coming out trying to take some profits.

"Brazil is the only thing trading. And Mexico is pretty quiet out there.

"It was very quiet in the morning" while the tone of the market is neutral, he noted.

"It doesn't feel one way or another."

Oil prices bring down Brazil

Soaring crude oil prices dragged down Brazilian paper, according to Enrique Alvarez, Latin America debt strategist for think tank IDEAglobal.

Oil prices recoiled early Wednesday but rose later on supply concerns. Oil reached $53.64 a barrel on the New York Mercantile Exchange, up $1.13 on the day and unwinding Tuesday's reduction. Crude prices initially continued to ease Wednesday but spiked up following news that a 30-inch oil line exploded in eastern Mexico on Wednesday morning, which sparked market fears of a possible terrorism connection.

Rising oil levels pushed U.S. Treasury prices higher Wednesday as the oil spike is expected to cool economic growth in the United States. The yield on the 10-year bond finished at 4.08%, down from 4.10% on Tuesday.

There is a realization that Brazil's economy will not be immune to this high level of oil prices, said Alvarez. The country could feel the burn either on the inflation side or through something else.

"That's what is causing a sell off," Alvarez said.

"You see the Bovespa has come off over 3%.

"And you see the same type of profit taking in debt although in debt instruments the profit taking has been a little more contained.

"It's still note worthy. It all refers back to what is happening with crude and the market just refuses to cool," he noted.

Looking ahead, a market source said that oil prices and the U.S. economy would be the headlining story.

The source also added that local newspapers are reporting that the Argentine government will be releasing the terms on its latest proposal to restructure $100 billion of defaulted debt in a few days.

Some of the improvements being reported include a shorter maturity from the June offer and that the government will give Brady holders additional bonds equivalent to the value of U.S. Treasury bond guarantees.

VimpelCom sells $300 million

In the primary market, Russian wireless provider VimpelCom priced $300 million seven-year notes (B1/B-) at par to yield 8 3/8%.

JP Morgan and UBS Investment Bank ran the Rule 144A/Regulation S deal.

The deal was VimpelCom's fourth this year.

The company sold a $250 million offering of three-year notes to yield 10.45% in April, a $250 million five-year deal to yield 10% in June and a $200 million add-on to the five-year notes in July at 100.5.

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