EM volumes light, spreads widen on economic concerns; Rushydro sells notes; inflows rise

By Christine Van Dusen

Atlanta, Oct. 22 - The flow of new bond deals in the emerging markets slowed again on Friday - with pricing from Russia-based Rushydro - as spreads widened and cash-strapped investors remained cautious in light of recent monetary tightening in China and mixed signals from the Federal Reserve.

"Generally the market's a little bit weaker," a London-based trader said near the European close. "Spreads are a little bit wider, with the exception of Turkey, which continues to be performing pretty well. Everyone else looks to be softer."

A New York-based trader spied the same trend, noting that Brazil's five-year credit default swaps, for one, were "still at the 100 area."

Prices, in general, moved "lower by a few points" in most high-beta credits "as risk aversion and profit-taking" took hold after "the recent run to year-to-date highs and tights in many credits," he said.

Some names were trading higher, though. He pointed to the Mexico 5¾% century bond - pricing earlier this month at 94.276 to yield 6.1% - which closed Friday at 98.10 from 96.25 on Thursday.

"That saw a low of 95.00 yesterday as volatility in that issue has picked up over the last two days in a thin market," he said.

Most other credits in Latin America were up between "¼ and 1/2" as Argentina's 2015s traded at 91.50 and Venezuela's 2022s moved to 86.00.

Volumes, meanwhile, remained "light," he said.

Inflows climb

Overall, the week saw some "light profit-taking" in the wake of the China news and a lack of definitive information about the implementation of further quantitative easing in the United States, according to an RBC Capital Markets report.

The focus now "remains on how policymakers respond to lingering currency appreciation pressures," the report said. "Over recent weeks, officials across a broadening list of emerging markets have either voiced concern over excessive currency strength or taken action to intervene in their FX markets, partly to protect export competitiveness and partly to prevent the build-up of over-heating growth and domestic asset bubbles down the road."

Most of the measures so far have focused on "taxing, not controlling, capital, which perhaps suggests that officials are aiming to slow, not necessarily reverse or block, private capital from entering, realizing that the outlook for emerging markets' fundamentals and returns remains very strong and should continue to attract significant capital inflows."

Indeed, inflows into emerging market bond funds totaled $1.4 billion during the week, according to data tracker EPFR Global.

Some market-watchers are forecasting that 2011 will see $746.4 billion in inflows, up from the forecasted $708.6 billion for year-end 2010, RBC said. That's well above 2009's inflows of $530.8 billion.

"Flows into emerging markets bond funds, which have now been positive for 21 consecutive weeks, heavily favored funds with local currency mandates as the spread between U.S. Treasuries and JPMorgan's benchmark EMBI+ index moved around the 260 bps level," EPFR said in a report.

Rushydro prices deal

Russia-based hydroelectricity company Rushydro Finance Ltd. priced RUB 20 million notes due Oct. 28, 2015 at par to yield 7 7/8%, a market source said.

JPMorgan and Troika Dialog were the bookrunners for the Regulation S-only transaction, which was talked at a yield of 8%.

Proceeds will be used for general corporate purposes and capital expenditures.

This followed the late Thursday pricing of Hong Kong-based business conglomerate Hutchison Whampoa International Ltd.'s $2 billion 6% perpetual step-up notes at par to yield Treasuries plus 488.5 basis points, a market source said.

Goldman Sachs was the bookrunner for the Rule 144A transaction, which is non-callable for five years.

Also pricing late Thursday was Bahrain-based lender BBK's $500 million 4½% notes due Oct. 28, 2015, which came to market at 98.912 to yield 4.74%, or mid-swaps plus 337 bps, a market source said.

Citigroup, Deutsche Bank and HSBC were the bookrunners for the Regulation S deal, which was talked at mid-swaps plus 337.5 bps.

Mexico priced ¥150 billion 1.51% notes due Oct. 28, 2020 at par via Mitsubishi UFJ, Mizuho and Nomura.

Proceeds will be used to cover debt service payments, a source said.

And Venezuela-based lender Corporacion Andina de Fomento priced a ¥14.4 billion two-tranche issue of samurai bonds due 2014 and 2015 via Mizuho and Nomura.

The deal included ¥9.8 billion notes due Oct. 27, 2014, which priced at par to yield 1.56%, and ¥4.6 billion 1.82% notes due Oct. 27, 2015 that also priced at par.

Noble Group talks notes

Friday also saw Hong Kong-based shipping company Noble Group set price guidance for its planned benchmark-sized issue of dollar-denominated perpetual notes at the 8½% area, a market source said.

JPMorgan, RBS and Standard Chartered are the bookrunners for the Regulation S transaction.

Market-watchers were also whispering about a possible ruble-denominated issue of notes worth about $3.2 billion from Russia.

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