Emerging market debt tightens amid low liquidity; America Movil sells $500 million notes

By Reshmi Basu and Paul Deckelman

New York, Dec. 19 - Emerging market debt trudged higher Tuesday as investors began to close shop for the remainder of the year.

In the primary market, Latin America's biggest wireless company America Movil, SA de CV placed a $500 million offering of 18-month floating-rate notes (A3/BBB+/BBB+) at 99.89875 to yield a spread of three-month Libor plus 17 basis points.

Citigroup was the bookrunner for the Rule 144A/Regulation S (with registration rights) deal.

EM higher

Emerging market debt moved higher Tuesday amid thin trading volumes, despite negative headlines surfacing from both the United States and Thailand.

The mood on Wall Street was slightly soured by news that the U.S. Producer Price Index saw its sharpest increase in 30 years.

Out of Thailand, the government moved to impose currency controls on international investors, which pushed the country's equity market off-kilter.

The government imposed a 30% deposit requirement with the central bank on all new foreign investment in hopes of curbing inflation and to keep the local currency from appreciating.

The announcement triggered a sharp decline in Thailand's local markets, including a 15% plunge in stock prices. Following the massive sell-off, the government rescinded the requirement for equity investments.

A trader in Asian issues said that "there was a lot of movement in Thailand [securities] overnight" in the wake of the Bangkok government's announcement but added that things had quieted down by the time trading opened up in New York.

He said the "headline move" of the day was in the five-year Thailand credit default swaps contracts.

He said that the CDS spreads had been quoted at levels of 23 to 27 basis points before the government announcement was made, and then widened out to 31-35 at one point.

"It came back in, tightening now, so closing a couple of basis points wider" on the session in a 25-29 context, "having been six or seven [bps] wider."

Ecuador up

In Latin American debt trading, sovereign issues were seen pretty much firmer across the board, including Ecuador, which got a boost from the news that the Corporacion Andina de Fomento, an Andean development bank, said Tuesday that it will lend Quito between $2.5 billion and $3 billion over the next four years.

That development will likely have a calming effect on markets put on edge by the recent election of Rafael Correa as the country's new president.

Correa, who takes office on Jan. 15, said last week that he intends to restructure Ecuador's $11 billion of international debt, causing a fall at that time in the country's bonds. Since the run-off election in late November, Ecuador has given up some 9%.

Back to the broader market, sovereign debt traded in tight ranges, noted a market source, who added that spreads narrowed by 2 basis points versus Treasuries.

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