Emerging market debt dragged down by Treasuries; Bank TuranAlem plans roadshow

New York, April 7 - Emerging market debt succumbed Friday after larger than expected U.S. non-farm payroll numbers sent U.S. Treasury yields soaring.

In the primary market, Kazakhstan's JSC Bank TuranAlem plans to start a roadshow for a dollar-denominated benchmark-sized offering of seven-year bonds (Baa2/BB/BB+).

The two-day roadshow will commence on Monday, April 10 in Boston and wrap up the following day in New York.

ING and JP Morgan are running the Rule 144A/Regulation S deal.

EM doused by Treasuries

Emerging market debt was slammed Friday as the 10-year Treasury note hit a nearly four-year high after job numbers surpassed expectations.

The Labor Department reported that 211,000 new jobs were added in March while the jobless rate fell to 4.7%.

Those numbers added fuel to speculation that the Federal Reserve will raise rates beyond 5% this summer. The yield on the 10-year note pierced 4.98% before falling back to 4.96% from Thursday's close of 4.89%.

However on further inspection the job data is not that significant, according to Enrique Alvarez, Latin America debt strategist for think tank IDEAglobal.

For instance, job numbers were revised downwards for January and February, which places the growth of new jobs created at an average pace.

But Friday's numbers served up extra ammunition allowing the Treasury market to go in the direction that it wants to, which is in this instance is in the direction of higher yields, remarked Alvarez.

Thus, the massive sell-off in Treasuries did usher in an ugly session for emerging markets.

Moreover, a market source added that off-the-run names were underperforming benchmark credits.

During Friday's session, sovereign bonds, with the exception of the Brazilian bond due 2040, were trading wider, according to the source.

Brazilian bonds were down by as much as two points on the long end of the curve, noted sources.

At session's end, the Brazilian bond due 2040 was down 0.95 to 127.20 bid, 127.35 offered while its spread narrowed one basis point versus Treasuries. The Brazilian bond due 2034 shed 2.05 to 106.25 bid, 107.25 offered.

Meanwhile Colombia was battered as its currency continued its downward spiral on the back of Treasury weakness. During the session, the Colombian bond due 2027 lost three points to 110 bid, 112 offered.

And even higher oil prices could not salvage oil producers as Venezuela ended its recent bout of out-performing the asset class. The Venezuelan bond due 2027 gave up 1.05 to 123.70 bid, 124.25 offered.

Additionally, if investors are long in anything other than the Brazilian 2040 bond, Mexican bonds due 2027 or 2034 or the Venezuelan bond due 2027, there were no decent bids to be found Friday, noted the market source.

Furthermore, Friday's action was not a knee-jerk reaction, noted Alvarez. He said that since the market has been overextended, it needed a catalyst to bring it back to more "tolerable risk levels."

Peru narrows

One unexpected occurrence was that Peru narrowed by four basis points on a spread basis although it slipped on a dollar basis, according to market sources.

On Sunday the country was scheduled to hold presidential elections where the probability was high that no candidate will pull out 50% of the vote to win the presidency. As a result the market was seeing the election as being about who will be the two top contenders in May's run-off vote.

Peru's out-performance Friday can be credited to some risky investors, observed Alvarez.

"Whoever wanted to get out, got out by now," he remarked. "You have some brave souls thinking they are picking up a bargain.

"The locals have been stubborn in not willing to leave the market.

"I think there is going to be a major pounding on Monday," he said, picking nationalist Ollanta Humala and former president Alan Garcia to come out ahead of market favorite Lourdes Flores.

During the session, the Peruvian bond due 2033 gained 0.50 to 110 bid, 110.50 offered.

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