Emerging market debt rebounds as U.S. Treasuries rally; Corporates issue $500 million in new paper

By Reshmi Basu and Paul A. Harris

New York. Feb. 22 - Emerging market debt bounced back Wednesday in response to a rebound in U.S. Treasuries.

In the primary market, two corporates priced $500 million in new bonds.

Russia's JSC Sitronics, issuing via Sitronics Finance SA, sold a $200 million debut offering of three-year bonds at 99.672 to yield 8%.

The issue priced at the tight end of price guidance, which was set at 8% to 8¼%.

ABN Amro and Credit Suisse were lead managers for the Regulation S transaction.

Also pricing, Brazil's Companhia Energetica de Sao Paulo (CESP) sold an upsized $300 million offering of five-year notes (B3) at 99.0406 to yield 10¼%.

The deal, increased from $200 million, priced at the tight end of revised price guidance. Guidance was 10¼% to 10 3/8% after being reduced from the 10 ½% area.

Banco Finantia and Standard Bank were joint bookrunners for the Rule 144A/Regulation S notes.

Out of India, NTPC Ltd. revised price talk for its $300 million offering of 10-year senior fixed-rate notes (/BB+/BB+) to Treasuries plus 140 to 145 basis points from 145 basis points to 155 basis points.

Barclays Capital and Deutsche Bank are lead managers.

EM up on Treasury bounce

Emerging market debt retraced losses Wednesday in response to a U.S. Treasuries rally, the day after a bout of profit taking.

A benign reading of core inflation for January stroked the Treasury rebound as the data alleviated worries that the Fed would raise interest rates beyond 5%.

Additionally, the debt market gained support on a firmer performance by global equities markets. The Dow Jones Industrial Average rose 68.11 to 11,137.17.

Overall, spreads for emerging markets were wider by two basis points, but nonetheless returns were positive in dollar terms, noted sources.

One market source credited Wednesday's firmer tone to the recovery of the Brazilian real, which saw panic selling after the country reported its first current account deficit in 14 months on Tuesday.

Earlier in Wednesday's session, the Brazilian real was trading at 2.18 but closed out the day at 2.14, giving support to Brazilian bonds

During the session, the Brazil bond due 2040 added 0.55 to 132.70 bid, 132.80 offered.

"Trading was a little more active than yesterday [Tuesday]," remarked a trader.

"Prices are back up. It was a little bit droopy yesterday [Tuesday], but things have held on.

"We got back some of what we gave back yesterday [Tuesday]," the trader said, adding that market players ran the gamut from local accounts, fast money dealers to asset managers.

In other news, the Mexican peso rebounded after tracking Tuesday's sell off of the Brazilian real.

The country's bond due 2026 gained 2 points to 163 bid, 165 offered.

Elsewhere, Ecuador bonds fell as protesters continued to disrupt the production of oil. Its bond due 2012 slipped 0.30 to 102 bid, 102.80 offered while its bond due 2030 lost 0.55 to 98.10 bid, 98.75 offered.

Colombia saw higher prices on a Standard & Poor's rating change to positive from stable. Its bond due 2012 added 0.40 to 121.15 bid, 121.40 offered.

And Moody's Investors Service cut its debt outlook for Hungary to negative from stable. The country's bond due 2006 lost 0.01 to 100.182 bid, 100.201 offered.

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