CVRD, Gazprom shop benchmark high-grade deals; Latin American outperforms; Turkey holds in

By Paul A. Harris

St. Louis, Nov. 13 - Latin America was the session's outperformer in emerging markets debt Monday, while Asia was somewhat softer, according to market sources.

But otherwise the sources who focus on different segments of the asset class marked the broad market variously as the week got underway.

Meanwhile Turkey, trailing last week's $750 million tap of its paper maturing 2036, was heard to be holding in, whereas Brazil's new sovereign paper maturing in 2017 was heard to have widened.

In the primary market, two ultra-familiar quasi-sovereign high grade issuers, Brazil's Companhia Vale do Rio Doce SA and Russia's OJSC Gazprom, were sighted heading to the global fixed-income bazaars with benchmark-sized deal.

EM outperforms Treasuries

In the later part of Monday afternoon, an emerging markets syndicate official said that emerging markets prices were lower on the day, but added that EM did not sell off as extensively as Treasuries.

The source said that the JP Morgan EMBI Global emerging markets bond index was two basis points tighter on the day, but only because Treasuries had traded off.

Turkey 2036 in line

The syndicate official said that the sovereign paper which Turkey priced last week in a $750 million tap of its 6 7/8% global bonds due 2036 (Ba3/BB-/BB-) had traded off a little, but was in line with the market.

The tap priced at 93.96 to yield 7.38%.

"It went pretty well," the official commented, adding that the bonds were quoted around 94.00 when Turkey did the tap, and have held in.

The source added that Turkey's sovereign deal did better than the $1.5 billion issue of 6% paper due 2017 which Brazil priced early last week at 159 basis points over Treasuries.

The Brazil bonds had traded at 170 bid on Monday afternoon, the source said, commenting that it seemed as though Brazil placed entirely too much of the paper with "trading-oriented accounts" that flipped the bonds.

Later in the day another source told Prospect News that the Brazil 2017 paper had underperformed, but added that Turkey indeed appeared to be holding in.

The source further commented that Turkey's 9½% bonds maturing in 2014, "the belly of the Turkish curve," were marginally tighter from the Friday close.

CVRD with $2.5 billion

Much of Monday's primary market news spotlight, meanwhile, fell on a pair of benchmark-sized deals now in the market by ultra-familiar quasi-sovereign credits from Brazil and Russia.

Vale Overseas Ltd., a wholly-owned subsidiary of Brazilian mining company CVRD, is in the market with a $2.5 billion offering of notes in 10- and 30-year tranches.

Credit Suisse, UBS, ABN Amro and Santander are joint bookrunners for the deal that CVRD is bringing to refinance debt related to its $16.9 billion acquisition of nickel producer Inco Ltd.

The issuer raised $1 billion in the dollar-denominated bond market on Jan. 5, 2006 with the issue of a 6¼% 10-year global bond (Baa3/BBB) which priced at 99.97 to yield 6.254%.

Gazprom returns

Also showing up with a high grade benchmark-sized deal was Russian energy giant, OJSC Gazprom.

The Russian gas giant began a roadshow on Monday in New York and Athens for the Baa1/BBB-/BBB- offering, which is expected to come in dollar- and euro-denominated tranches.

Credit Suisse and UBS have the books.

The roadshow wraps up Thursday in London.

The Moscow-based company last visited the global bond market on Oct. 20 of this year, pricing a €780 million issue of bonds due February 2014 at par to yield 5.03%.

Ukraine at $1 billion

In other sovereign action in the primary market, little information circulated on the benchmark-sized deal now in the market from the Ukraine.

A sell-side source said that the 10-year deal, via Credit Suisse, Deutsche Bank, UBS, is reported to be sized at $1 billion, and added that the books are expected to close Tuesday in London.

A market source noted that Moody's has changed its outlook on the Ukraine's B1 rating to positive, citing the general stabilization of the country's political situation.

The source observed that Fitch made the same move two weeks ago.

However the ratings moves appear not to have had much impact on Ukraine's bond prices, the source added.

Meanwhile, as Ukraine continues to market its pending dollar-denominated 10-year paper its outstanding five-year and seven-year bonds were seen at a 184 basis points spread to Treasuries - five wider from last week's close.

Banco BBM uspsizes

On the corporate front, Brazil's Banco BBM SA priced an upsized $150 million issue of three-year senior notes (Ba3) at par to yield 7½% on Monday.

The yield came at the tight end of the 7½% to 7 5/8% price talk, which had been tightened from the 7¾% area.

The order book contained in excess of $300 million from accounts that had put in for the bonds, according to a market source.

Dresdner Kleinwort ran the books on the deal, which was increased from $100 million.

LatAm outperforms Asia

Elsewhere a trader who focuses on Asian fixed income told Prospect News after Monday's close that Latin America had held generally better during the session while Asia "traded somewhat softly."

The credit default swaps of Indonesia and Philippines were wider on the session.

The source said that there had been some selling in Asian cash bonds as well.

Malaysia traded a little better, the source said, noting that there had been some buying in the region.

The trader spotted Malaysia's 4.262% bonds due in September 2016 at 78 bid, 74 offered, unchanged on the day.

Meanwhile Philippines five-year CDS closed at 136 bid, 132 offered after having opened the session at 134 bid, 130 offered.

The Philippine CDS was at 130 bid, 126 offered on Friday, the source added, reckoning that all in all it had widened six basis points since then.

The source added that Hong Kong China paper was a little softer on Monday as well.

Benign slowdown

The trader said that at present investors seem focused on U.S. economic numbers, and also seem to be positioning themselves for a "benign slowdown" scenario which could unfold in the coming year.

The source said that there is evidence in East Asia that the local markets and local economies are picking up the slack from U.S. consumers, hence a mild slowdown in the United States may be "the best of all worlds because it takes the Fed out of the picture somewhat," while at the same time a slowdown in the U.S. economy would not appear to have dire implications for global growth.

Should the U.S. economy suffer a sustained slowdown, however, all bets are off, the trader said.

This source said that another scenario, which does not seem to be factored in right now, is that the U.S. economy does not slow down, and inflationary pressures do not ease off.

"That puts the Fed back in play, and puts the pricing structure of the Treasury market in question," the source warned.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.