China currency news prompts cautious optimism in emerging markets; Kexim, Citic Bank price

By Christine Van Dusen

Atlanta, June 21 - Emerging market debt got a boost on Monday on the news that China would no longer peg the yuan to the dollar, sending 10-year Treasuries up as much as 8.5 basis points early in the day as investors gained confidence about a possible global economic recovery.

The move also helped spur some primary activity in Asia, with pricing from South Korea-based Export-Import Bank of Korea and Hong Kong-based Citic Bank Corp.

But the optimism was tempered just a little bit as the day went on, with yields up just 3 bps by mid-afternoon, as market-watchers wondered how the more flexible Chinese yuan would impact exporters and the sovereign's demand for Treasuries.

Still, the tone was "very firm on the back of the Chinese news," a London-based trader said.

Another London-based market source agreed. "The China news pushed all risk markets better," he said. "Ours was no different."

But that didn't spawn a surge of trading activity in emerging markets. "There's nothing special, really," he said.

Said a New York-based trader, "Everything's pretty flat. It's slow and there's not much happening. It's very, very quiet. We're waiting for stability."

Though Europe's financial crisis remained on radar screens - most recently with Greece's ruling party hammering out reform proposals - and games continued in the distracting FIFA World Cup tournament, the main reason for the slow pace on Monday was the time of year, a Connecticut-based source said.

"I think it's the fact that it's the summer, and there's not much more to it than that," he said. "Stuff was better across the board but on very light flows. It was dead."

Asia perks up

Still, Asia managed to generate some news with the increased flexibility of the yuan and pricing from two banks.

Seoul-based lender Kexim priced $1.25 billion 5 1/8% notes due June 29, 2020 at 99.229 to yield Treasuries plus 198 bps, according to a market source.

Citigroup, Bank of America Merrill Lynch, Deutsche Bank, BNP Paribas, RBS and Woori Investment and Securities were the bookrunners for the Securities and Exchange Commission-registered deal.

Proceeds will be used for general operations, including extending foreign currency loans and repayment of maturing debt and other obligations.

Meanwhile Hong Kong's Citic Bank International Ltd. priced $500 million 6 7/8% subordinated bonds due June 24, 2020 at 99.654 to yield Treasuries plus 362.5 bps, according to a market source.

Barclays Capital and HSBC were the bookrunners for the deal, which was talked at Treasuries plus 362.5 to 375 bps and is non-callable.

Both issues were "very quiet" on Monday, a New York-based trader said. "Asia has to open up first, and then tomorrow they may have a better response."

The Connecticut-based source said the deals came to market Monday just because they could. "They could get it done today," he said.

Now that these issues have priced - following last week's pricing of $750 million 8 5/8% loan participation notes from Russia's Mobile TeleSystems OJSC at par to yield Treasuries plus 531.7 bps and a three-tranche euro- and sterling-denominated offering of notes from Mexico-based America Movil - it appears the pipeline for new issuance has opened.

But the flow of deals is expected to remain somewhat slow, and not particularly steady, unless the market experiences an extended period of time without volatility.

"I think we will see some issues come this week as there is some stability back in the market," the London-based trader said.

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