Emerging market debt tracks global markets lower; Russia's Absolut Capital retaps 2009 bonds

By Reshmi Basu and Paul A. Harris

New York, May 11 - Emerging market debt slid Thursday on the back of dismal performances by global financial markets.

On the supply side, Absolut Capital (Luxembourg) SA, a subsidiary of Moscow-based Absolut Bank, priced a $50 million add-on to its 8¾% senior unsecured eurobonds due April 7, 2009 at 99.00 to yield 9.144%.

The yield came within the 9% to 9¼% price talk.

Merrill Lynch & Co. was the bookrunner for the Regulation S add-on.

On March 26, the original $150 million issue priced at 99.352 to yield 9%. Following Thursday's tap the total issue size stands at $200 million.

Adding to the Brazilian corporate pipeline, GTL Trade Finance, a special-purpose vehicle of Brazilian steel firm Gerdau SA, will begin a roadshow on Monday in London for its $400 million offering of 10-year notes (Ba1/BB+/BB+) via JP Morgan.

And Brazilian private industrial conglomerate Camargo Correa SA talked its $250 million offering of 10-year notes (/BB/BB) at 8% area.

Credit Suisse and BNP Paribas are leading the Rule 144A/Regulation S offering.

In late afternoon trading, the existing Camargo 8 7/8% bond due 2015 was spotted unchanged at 107.75 bid, 108.75 offered, according to a market source. So far this week, the issue has lost 0.50.

EM slides lower

On Thursday global financial markets took a beating as commodity prices climbed higher. Gold closed at $721.50 an ounce, its highest level in some 26 years. Crude oil also saw a spike in prices, ending the session at $73.32 a barrel.

Higher commodity prices renewed inflation fears, which in turn reinforced the Federal Reserve's case to continue forward with its current monetary tightening campaign.

Financial markets did not welcome the news. The Dow Jones Industrial Average Index plunged more than 140 points to close at 11,500.73, breaking a winning streak of five straight sessions.

U.S. Treasuries also slumped. The yield on the 10-year Treasury note shot up to 5.15% from 5.13% on Wednesday.

As a result, emerging market debt tracked equities and U.S. Treasuries lower on Thursday.

"There's a decent amount of selling going on today [Thursday]," remarked a trader, adding that accounts were looking to unload paper across the board.

"Russia, Brazil, Mexico, Venezuela - everything widened out on spread terms and was a lot lower on dollar prices," he added.

During the session, the Brazilian bond due 2040 shed one point to 127.10 bid, 127.25 offered. The Argentinean discount bond due 2033 lost one point to 98 bid, 98.20 offered. The Mexican bond due 2026 gave up 1.50 to 151 bid, 152 offered. The Russian bond due 2030 was down 0.75 to 107.25 bid, 107.50 offered. And the Venezuelan bond due 2027 eased up 0.95 to 125.05 bid, 125.30 offered.

The trader observed that there was a fair amount of trading volume while the session saw a mixed bag of sellers, which included locals, New York investment firms and hedge funds.

It was a little bit of the Fed, a little bit of Treasuries and a little bit of equities that triggered the sell-off, he noted.

Furthermore, it is "that time of year, where people start to sell," he remarked.

Moving forward, the market will be very U.S. data dependent, given that the Federal Reserve appeared to have left the door open for more rate hikes in the statement accompanying its decision to raise the fed funds rates to 5% on Wednesday.

"The statement was a little more hawkish than people expected," said a sellside source.

"People think that they might pause at the next meeting, but they will most likely come back with more hikes after that."

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