World Cup holds market's focus; primary quiet; Grupo Bimbo, Pemex plan non-deal roadshows

By Christine Van Dusen

Atlanta, June 11 - Shouts and cheers erupted on trading desks all around Europe on Friday, but the excitement wasn't due to any burst of activity in the primary and secondary - it was because the FIFA World Cup was underway.

"That's my struggle today," a London-based trader said above the din. "Everybody on the planet is watching. It's all about the World Cup."

Indeed, the World Cup took a lot of attention off the markets. "I think that's a good thing," a New York-based market source said. "We've had extreme volatility as of late. So it would be good to have a day where the market doesn't move much, positive or negative."

Greece, Hungary don't distract

Also impacting activity on Friday was news that U.S. retail sales had dropped an unexpected 1.2%. It was the first decline reported by the Commerce Department since September and dampened the optimism generated by good export numbers from China and a successful auction of notes from Spain. In response, yields on 10-year Treasuries ticked down a touch to 3.258% in the morning.

Word that U.S. consumer sentiment was better than expected in May - plus Hungary's pledge to reach budget deficit targets for this year and next - helped yields notch back up late in the day.

But still, "today was pretty quiet. Everyone was focused on the World Cup," an emerging markets debt portfolio manager said. "I don't think we've been able to string together three or four days of normalcy. Today was kind of artificial because there was an unofficial early close. If you wanted to do something it was going to be very hard. Everyone was so focused on the World Cup."

Secondary, primary quiet

On the secondary side, some of the higher-beta names were "up half a point to a point," the New York-based source said. "There's not a lot of conviction out there. But we're not seeing any panicked selling or validation of the depressed levels from the real money accounts."

The new issue front remained quiet on Friday. But "there's significant potential supply," the manager said. "It's a question of pricing. I think the investment-grade sovereigns and some of the high BB names could probably issue if they're willing to pay or give away some sort of spread premium or spread concession. But at this point nobody's that desperate. They don't have to come, so why pay up for it?"

When the window of opportunity does open, and issuers won't have to pay so much, "I think sovereigns and quasi-sovereigns will try to take advantage of that," the manager said. "There's a significant amount of investment grade and high yield-type issues out of emerging markets that want to come.

"But on the high-yield side, it's not just a matter of pricing but also receptivity. And we're not quite there yet."

LatAm could heat up

The manager expects the first issuers will likely come out of Latin America.

Indeed, two Latin American issuers took baby steps toward the market on Friday.

Mexico City-based bakery company Grupo Bimbo is embarking on a non-deal roadshow the week of June 14 via Bank of America Merrill Lynch, HSBC and Barclays, according to an informed market source.

And state-owned petroleum company Pemex of Mexico City is planning a non-deal roadshow with Deutsche Bank and HSBC.

"There's definitely a pipeline building," the New York source said. "I think we're going to see the high-grade credits come to the market sooner rather than later and establish a good benchmark and perform well and help the new issue market. We need to see the blue chip, high-grade names print successfully before the higher-beta names come to market."

The deal flow won't likely be heavy at first. "I think we'll see them tiptoe into the market. Investors are starved for product at this point. Nothing has come since late April and May," he said. "It will reopen slowly but surely and not robustly.

"We're not going to all of a sudden see six or seven deals. Issuers and syndicated desks will be waiting to see some of the deals that come go well and then bring other deals on the heels of that. We'll look for investment0grade names to lead the way."

Inflows hit near-term high

Inflows into emerging markets bond funds hit $824 million for the week ended June 9, according to data tracker EPFR Global. That's a five-week high.

"Emerging markets bond funds were the second-biggest money magnets despite the latest bout of risk aversion, which pushed the spread between U.S. Treasuries and JPMorgan's benchmark EMBI Plus index over the 350 basis points mark," EPFR's report said.

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