Risk aversion returns on U.S. economic data, G20; Argentina only mover in light trading

By Christine Van Dusen

Atlanta, June 28 - Risk aversion reared its ugly head again on Monday, once again shutting down the new issuance pipeline as issuers steered clear of the market and investors sought out safer assets.

Yields on 10-year Treasuries declined amid the recent spate of mediocre economic news out of the United States and the sense that Friday's report on June payrolls will be similarly disappointing. Also on Monday, the euro fell against the dollar after leaders at the G20 meeting said they would cut deficits by 50% by 2013 while also keeping stimulus plans alive.

Also impacting the pace on Monday was the continuing distraction of the FIFA World Cup.

"It's super slow today," a trader said.

Another source called the day "dead quiet."

A California-based buyside source agreed: "There's nothing. It's been really, really quiet. There's not a lot of news."

Equity market moves "still have impact on overall risk appetite," a trader said. But, he said, "real money seemed willing to add to emerging market bond exposure over the last two weeks."

Argentina sees strength

In the secondary, only Argentina saw any positive movement, the buyside source said. The sovereign's discount bond closed Friday at 68.5 basis points mid and by mid-afternoon on Monday was at 69.5.

"There is some strength in Argentina," she said. "For this bond, because it's trading with such a low handle, that's 1½% higher."

Prices in Argentina bonds ended 3/8 to ¾ higher on the day, "with the Boden '15s closing at 80.80," the trader said.

The reason for the bond movement seemed to be Argentina's recently closed debt swap, which offered a second exchange opportunity to bondholders who didn't participate in a 2005 swap. The debt swap got nearly 67% participation. That exceeded the latest goal of 60%, which was revised down from 75% but still shows that "the exchange is going to go through" and could raise the likelihood that the sovereign will be able to issue new debt, the buyside source said.

That's given investors a sense of "relief," she said.

But it hasn't necessarily calmed all fears about Argentina, according to a report from Moody's Investors Service. The ratings agency believes that only the issuers with the highest ratings will be able to tap the global debt markets because investors are likely to remain wary about political and economic issues in Argentina.

Still, the sovereign was "the only market that really moved today," the buyside source said. "Everything else is quite flat. It's been pretty low liquidity, actually."

For that she blamed the usual summer slowdown as well as the upcoming July 4 holiday in the United States.

Corporate volume light

Among corporates, Monday saw "super light volumes," a trader said.

But the market "still held a firm tone with bids holding up but little buying conviction to push assets higher."

The $205 million 9¼% notes due 2020 from Mexico's Corporacion GEO SAB de CV, which priced Friday at 98.409 to yield 9½%, or Treasuries plus 641.8 bps, was "bid higher at 100%," he said.

And the $800 million 4 7/8% notes due 2020 from Mexico's Grupo Bimbo SAB de CV, which printed at 99.726 to yield 4.91%, or Treasuries plus 180 bps, continued to trade at about 175 bps, he said.

The issue price was considered "tight by many market participants," he said.

VEB could print Thursday

The primary was mostly silent on Monday, save for some whispers about the planned eurobond notes from Moscow-based development bank Venesheconombank. The deal is expected to come to market this week via Barclays, Citigroup, HSBC, Societe Generale, ING, Troika Dialog and VTB Capital, a London-based trader said.

"I hear it's coming on Thursday, but have no other details yet," he said.

Other sources are speculating the deal could be worth about $2 billion.

Meanwhile, a few Latin American issuers moved forward with plans for non-deal roadshows. Mexico-based lender Banorte, Brazil-based meat producer Frigol and Mexico-based construction materials producer Elementia are hitting the road for investor meetings, a source said.

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