Russia's VTB Bank sets guidance; Argentina remains volatile; EM tighter at New York close

By Paul A. Harris

St. Louis, Feb. 24 - The JPMorgan Emerging Markets Bond Index, the EMBI Plus, tightened by 6 basis points and closed the New York session on Wednesday at a spread of 298 bps, according to a market source.

The EMBI Plus Latin American sub-index tightened by 8 bps to close at a 349 bps spread.

Focus on Argentina

In the LatAm space players remained focused on Argentina, market sources said Wednesday.

In the European afternoon Argentina's five-year credit-default swaps were 1,178 bps mid, 75 bps wider from the day before, a market source said.

What caused the widening seen in Europe was news that the Argentine courts have ruled that the issue of whether central bank reserves may be brought into play in an anticipated debt exchange should be decided in the legislature, where the measure faces stiff headwinds.

"That's a negative for Argentina," said Enrique Alvarez, head of Latin America fixed income research at IDEAglobal.

An exchange is still likely to be attempted, Alvarez added.

However it faces hurdles, one of which is an escalating cost due to price erosion of Argentina's outstanding debt.

Argentina's dollar-denominated discount bonds actually tightened slightly on Wednesday, to 64 bid, up from Tuesday's 63¼ bid, Alvarez said.

However spreads on the discount paper are range-bound at around 850 bps over Treasuries.

"That makes it quite expensive to go out and issue paper at this point," the strategist said.

VTB Bank price talk

The Russian Federation's JSC VTB Bank (Baa1/BBB/BBB) set price talk for its benchmark dollar-denominated offering of global bonds at mid-swaps plus 400 bps.

The offering is expected to come in tranches of five-year and/or 10-year notes.

The roadshow was scheduled to conclude on Wednesday in London.

Pricing is expected late this week or early next week.

Deutsche Bank, JPMorgan and VTB Capital are the leads for the deal, which is being marketed under Rule 144A and Regulation S.

Should the new VTB Bank deal in fact come at 400 bps over mid-swaps, it would price inside the Russian bank's existing bonds, according to a London-based trader who focuses on Russian corporates.

"Clearly they are confident," the trader remarked.

Russian corporates resilient

The Russian sovereign and Russian corporates have demonstrated resilience to the ill winds that have blown out of southern Europe, due to uncertainty surrounding the financial health of Greece and other European Union member states, the banker said.

On Wednesday, however, Russian corporates presented a mixed picture, the source conceded.

CDS spreads were 3 to 4 bps tighter.

Cash bonds were mostly tighter, but not by huge amounts.

Russian sovereign paper was down about 5 bps on the day, at 113 1/8 bid, 113 3/16 offered, a move that mostly reflected a move in U.S. Treasuries, the source said.

OAO Gazprom's dollar-denominated bonds maturing in 2014 were flat on the day at 110 bid, 110¼ offered.

The primary market remains generally quiet, the source said.

Alliance Oil still on tap

In addition to VTB, Moscow-based Alliance Oil Co. Ltd. (/B+/B) remains in the market with a five-year benchmark Rule 144A and Regulation S global bond offering that could price by the end of the week.

BNP Paribas, Credit Suisse and JPMorgan are leading the bond offering.

And Bank of Moscow, which is part owned by the city of Moscow, is out there with a benchmark-sized offering of dollar-denominated global bonds via a syndicate of banks being led by Credit Suisse.

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