Emerging market debt sees unremarkable day on summer lull; EM inflows at $78 million

By Reshmi Basu and Paul A. Harris

New York, Aug. 4 - Emerging market debt traded with no flair Thursday in a vacuum of headlines, while Panama re-tapped its bonds due 2034 to add $250 million.

In a particularly unremarkable session, emerging market debt traded flat to slightly higher, said sources.

"It's so boring," said a buyside source. "Today [Thursday] is flat. Nothing really happened."

"In general, there's no real news out there. And the market is being driven just by flows. There is apparently still some money being put to work," added the buyside source.

In fact, flows into emerging markets have been positive for the last six weeks. Emerging market bonds saw inflows of $78 million for the week ended Aug. 3. That sum is a little bit more than half of last week's inflow number of $139 million.

The total received this year is $4.499 billion.

EM spreads tighten

During the session, the JP Morgan EMBI+ Index rose 0.06% while its spread to Treasuries tightened two basis points to 280 basis points.

The buyside source credited cash flows into the market as the reason why spreads have compressed.

"Spreads are tighter across the board, so maybe that's why you are seeing our market hold up in the face of the sell-off in [U.S.] Treasuries," remarked the buyside source.

In the session, Brazilian bonds made gains as president Luiz Inácio Lula da Silva appears to be out of harm's way in the "bribes for votes" scandal. It appears that the probability is low of Lula being implicated in the two-month old corruption scandal, noted the source.

In late trade, the Brazil bond due 2040 was spotted up 0.35 to 118.85 bid. The Russia bond was quoted at 111.18 bid, down 0.07. The Turkish bond due 2030 was seen at 142.87 bid, up 0.495.

No upgrade for Brazil, says S&P

The source added that the only "headline" of the session was a non-event. Ratings agency Standard & Poor's said that the congressional probe into corruption charges levied against the Workers' Party in Brazil has kept it from raising the country's credit rating.

The macroeconomic performance may warrant an upgrade, but the political situation prevents such an action.

"It's kind of good and bad," said the buyside source. "It's good that they would have upgraded but bad that they couldn't because of the political [crisis]."

S&P rates Brazilian foreign bonds BB-, three notches below investment grade.

Panama retaps 2034 bonds

Meanwhile in the primary market, the Republic of Panama reopened its 8 1/8% global bond due 2034 (Ba1/BB/BB+) to add $250 million.

The re-tap priced at 113¼ to yield 7.042, or 252 basis points more than Treasuries.

Deutsche Bank was the bookrunner for the drive-by transaction.

The sale brings the total size of the issue to $500 million.

"They really didn't need to issue. I think it was more of an opportunistic move here. Rates are low; demand is good," added the buyside source.

Separately, Banco Votorantim Nassau Branch priced an upsized offering of $100 million in five-year floating-rate notes (/BB-) at 99.90 to bear a coupon of three-month Libor plus 200 basis points.

The deal was increased from $50 million.

BNP Paribas was the bookrunner for the Regulation S-only offering.

Banco Bradesco Cayman branch was the co-manager.

The issuer is a subsidiary of Banco Votorantim SA, a Sao Paulo, Brazil-based financial institution.

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