Emerging market debt spreads widen on rate hike unease; oversubscribed Hong Kong Land prices

By Reshmi Basu and Paul A. Harris

New York, April 21 - Emerging market debt took another hit Wednesday as investor confusion about the timing of a U.S. interest rate hike intensified.

"Yesterday, we were positive that an interest rate hike was imminent," said a trader.

"Now I don't know how to interpret Greenspan. Fed hikes are coming, but who knows when," he added.

The JP Morgan EMBI Index fell by 0.73%. Its spread to Treasuries widened by eight basis points.

On Wednesday, Federal Reserve Chairman Alan Greenspan said that inflation appeared to be in check, hinting that the Fed was in no rush to act.

"The protracted period of monetary accommodation has not fostered an environment in which broad-based inflation pressures appear to be building," Greenspan told Congress' Joint Economic Committee.

Hutchison Whampoa beat up

Meanwhile, Hutchison Whampoa suffered in trading. According to a market source, the Hong Kong telecom has been knocked around in line with the rest of the market. Mainly Wall Street firms and "fast money" have been selling hard.

Hutchison's Whampoa 6¼% bond due 2014 finished at 190 bps bid, 185 offered seven basis points wider since Tuesday. Its 5.45% bond due 2010 widened two basis points to 200 bps bid, 195 bps offered. And the 7.45% bond due 2033 closed the session eight bps wider at 235 bps bid, 227 bps offered.

Brazil weighs down on Latin America

Brazil has been pulling down the Latin American asset class, according to a fund manager. But why Brazil has been hit so hard is a question.

Its EMBI component plunged 1.38% by the close of Wednesday's session. Its spread to Treasuries widened by 16 basis points.

The Brazilian benchmark C bond was down 0.38 at 92.25 bid, 92.25 offered. The bond due 2040 was down 0.50 at 95.3 bid, 96.0 offered.

"It's been Brazil as the key driver in terms of volatility and spread widening," said the fund manager.

At first, speculative accounts had been looking for some kind of trade by shorting the bonds, he said.

Next in the line of events was "testing the market, testing the brokers' liquidity, selling the bonds very hard here after some of the price declined," he said.

Some of the real accounts started to reduce exposure.

"If you look at all the other assets, it's a little oversold - Brazil specifically. The spread has swung a little too far from the entire asset classes or the other assets that people might look at," he added.

Mexico, which accounts for about 17% of the EMBI Index have been relatively stable, said the fund manager. And its dependence on the United States' economic performance may help lessen its volatility. If the U.S. economy rebounds, most likely Mexico's economy will pick up.

"Even though the outlook is for a higher yield [on U.S. Treasuries], Maybe Mexico is not going to move that much as the other emerging market assets, said the fund manager.

But it's hard to tell, depending on how quickly the Fed is going to move.

"The U.S. Treasuries have already moved ahead," he added.

Hong Kong Land prices upsized eurobond

Hong Kong Land Finance (Cayman Islands) Co. Ltd., a financing subsidiary of Hong Kong Land Holdings Ltd., priced an upsized $500 million 10-year eurobond issue to yield 115 basis points over Treasuries. In dollar terms, it came at 99.114 to yield 5.617%.

The book was six times oversubscribed and the deal was upsized to $500 million from $300 million.

It was priced at the tight end of the initial price guidance of 10-year U.S. Treasuries plus 115 to 120 basis points.

The notes were sold to over 140 international and regional institutional investors.

JP Morgan and HSBC ran the books on the Regulation S issue.

VimpelCom, Korea Midland roadshows

Coming up, Russian communications company VimpelCom plans to roadshow its $300 million offering of five- to seven-year notes Monday through Thursday.

The roadshow will take place in Zurich on Monday, followed by London on Tuesday, then stopping in Boston on Wednesday and finishing off in New York on Thursday

JP Morgan and UBS Investment Bank are the underwriters for the Rule 144A/ Regulation S deal.

And Korea Midland Power will roadshow its $150 million seven-year bond offering on Friday and Monday in the United States.

The roadshow will start in Boston on Friday and finish in New York on Monday.

Credit Suisse First Boston and JP Morgan are running the Rule 144A/ Regulation S deal for the power utility company.

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