Emerging market debt trades flat to higher; Indosat sells $250 million seven-year notes

By Reshmi Basu and Paul A. Harris

New York, June 15 - Emerging market debt saw a slight uptick as flows continued to be thin across the asset class.

In the primary market, Indonesia's Indosat International Finance Co. BV priced $250 million of seven-year bonds (B1/BB-) at 99.323 to yield 7¼%.

The new issue priced one day ahead of the last leg of its scheduled roadshow, which was to take place on Thursday in New York.

The book size was $6 billion, according to an investor note, which added that Indosat's existing 7¾% bond due 2010 reacted to the substantial demand for the new issue. The bonds' spread tightened 15 to 20 basis points from earlier in the week.

Credit Suisse First Boston, Goldman Sachs & Co. and JP Morgan were the joint bookrunners for the Rule 144A/Regulation S offering. JP Morgan acted as the global coordinator.

And the Republic of Lebanon sold $500 million in a dual tranche offering of three-year and eight-year bonds, according to a market source.

The tranches were comprised of $250 million each.

The three-year bonds priced at 99.67 to yield 7½%, the wide end of price guidance.

The eight-year bonds priced at 99.29 to yield 8¾%, also the wide end of guidance.

Credit Suisse First Boston and Blom Bank ran the Rule 144A/Regulation offering.

Also, Thai Olefins PCL set price guidance for an offering of $300 million in 10-year bonds (Baa3/BBB-) in the area of Treasuries plus 155 basis points.

Citigroup and Deutsche Bank are running the Regulation S bond offering.

Comparable issues such as Malaysia's Tenaga Nasional Bhd. 5¼% bond due 2015 (Baa2/BBB) traded at 106 basis points more than Treasuries. Petrothai Corp. 5¾% bond due 2014 (Baa1/BBB+) traded at 99 basis points over Treasuries.

EM sees light flows

Emerging market debt saw thin flows as it tracked a topsy-turvy U.S. Treasuries market, according to sources. Treasuries saw a volatile session on a slew of conflicting economic data in the United States.

Treasury prices rose on news that the consumer price index came down 0.1% in May, the first decline in 10 months as energy prices slid sharply.

Later in the session, Treasury prices were under pressure after the New York Fed reported that its statewide manufacturing index this month increased to 11.7 from negative 11.1 in May, suggesting a rebound in industrial production.

But then Treasury bonds retraced some losses when the Federal Reserve's Beige Book survey showed signs of softness in regional economies.

The yield on the 10-year Treasury note stood at 4.12% by the end of the session, up from 4.10% in late trading Tuesday.

Emerging market debt "pretty much closed where we were last night," said a trader.

"Treasuries were down, they came back. Stocks were down, they came back. "Emerging markets were down, they came back," he added.

Meanwhile Brazilian bonds saw a tad higher bid Wednesday, he said. Brazilian paper rallied Tuesday afternoon after Roberto Jefferson, a Labor Party deputy, testified that he had no proof to back up his charges of corruption against president Luiz Inacio Lula da Silva's administration.

"Today [Wednesday], it's pretty much following the Treasury market. In Brazil, back to normal," remarked the trader.

During the session, the C bond was unchanged at 101 5/8 bid while the bond due 2040 added 0.65 to 118.40 bid.

"Other countries like Venezuela continue to perform and Ecuador is performing well as well," observed the trader.

At session close, the Ecuador bond due 2030 was a quarter of a point higher at 84¼ bid. The Venezuela bond due 2027 rose three-quarters of a point to 102.20 bid.

Call it the start of summer boredom, said another trader, saying flows were light across the asset class.

"There's a sense of apathy that is pervasive across all fixed-income classes right now," he said.

"It's just not Asia. It's just not emerging markets," he replied.

"People are just not excited about doing anything. And basically, there's a general sense that the market can be characterized as, on one hand, lethargic and on the other, kind of sloppy."

Investors do not want to add or sell to their positions, until there is some clarity as to how the Fed will act and how the market will absorb new supply, he noted.

"It's the classic pattern of summer doldrums," which could continue until Labor Day, he replied.

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