Emerging market debt in wait-and-see mode ahead of Friday's jobs data; $1.88 billion of corporate deals

By Reshmi Basu and Paul A. Harris

New York, Oct. 5 - Emerging market debt inched higher Thursday on the back of a supportive U.S. stock market ahead of Friday's U.S. non-farm payroll numbers.

Meanwhile, the primary market saw $1.88 billion of new paper from corporates.

Emerging market debt took its cue from the U.S. equity market, which extended gains for the third consecutive session. However, the asset class was mostly on pause ahead of Friday's non-farm payroll numbers as bonds traded in narrow ranges, noted market sources.

Latin American sovereigns saw support, as investors appeared more comfortable that the U.S. economy is not heading for a hard-landing, according to Enrique Alvarez, Latin America debt strategist for think tank IDEAglobal.

Nonetheless, Alvarez noted that investors are the midst of a murky guessing game as they try to gage the magnitude of the U.S. slowdown.

That means Friday's job data will be a critical trigger, remarked one market source.

So far, the latest economic numbers are reinforcing sentiment that the economy may see a soft landing or a scenario even better than that, observed Alvarez. And Friday's payroll numbers may serve to support that argument, which will bode well for the asset class.

"Under that perspective, the market has continued to run as it has been running in past days," he said, describing Thursday's session.

He noted that there has been a certain preference for high beta credits such as Argentina, which has been buoyed by its recent upgrade by Standard & Poor's.

During the session, the Argentinean discount bond due 2033 gained 1.75 to 98.25 bid, 99 offered.

The bellwether Brazilian bond due 2040 added 0.05 to 131.15 bid, 131.20 offered.

Also adding uncertainty to the outlook are declining commodity prices. Investors will now have to reflect on how lower crude oil prices will impact the asset class, although that had a negligible impact on prices Thursday, observed Alvarez.

Ecuador up on short-covering

In other developments, Ecuadorian bonds rallied on short-covering in trading Thursday, according to market sources.

The Andean country has seen its bonds retreat on election nervousness as polls suggested an increased likelihood that radical leftist Rafael Correa will emerge as the outright winner in the first round of the presidential elections. Even more worrisome is that Correa looks set to have a clear mandate to preside.

In trading, the Ecuadorian bond due 2015 shot up 1.75 to 95.25 bid, 95.75 offered while the bond due 2030 jumped 0.80 to 91.80 bid, 92.05 offered.

On Wednesday, its bond due 2015 had given up 2.25 to 93 bid, 94 offered while the bond due 2030 fell up 0.90 to 90 bid, 91.25 offered.

EM sees $1.88 billion in new paper

Thursday was an active day for the primary market as corporates issued $1.88 billion of new debt.

First on the busy docket of new issuers, Bahrain's United Gulf Bank BSC sold $100 million of lower tier II bonds at 99.16 to bear a coupon of three-month Libor plus 180 basis points via Morgan Stanley, ABN Amro and UBS.

Next, the Commercial Bank of Qatar sold $500 million in five-year floating-rate notes (A1/A-) at 99.782 to bear a coupon of three-month Libor plus 40 basis points.

Citigroup and HSBC were the lead managers.

Over to Thailand, Krung Thai Bank PCL sold $220 million in a revived version of the offering of perpetual securities that it originally priced on Sept. 20.

On Thursday, the issuer sold the new securities (Ba1/BB+/BBB-) at par to yield 7.376% or a spread of Treasuries plus 280 basis points.

On Sept. 22, the initial deal was withdrawn due to market volatility stemming from a military coup, which caused spreads to widen by as much as 30 basis points.

The $200 million deal priced on the same day that Thailand's military pushed out prime minister Thaksin Shinawatra.

That shelved deal had priced at par with a coupon of 7.462% and a 210 basis point spread to mid-swaps.

Meanwhile Merrill Lynch & Co. managed Thursday's sale as well as the previous offering.

Elsewhere, BSP Finance BV, a wholly owned subsidiary of Indonesian rubber and palm oil producer, PT Bakrie Sumatra Plantations Tbk., priced a $110 million issue of 10¾% five-year senior secured notes (B2/B) at 98.00 to yield 11.278%.

Jefferies & Co. and PT Danatama Makmur were joint bookrunners for the Regulation S transaction.

Moving to Russia, Russian Credit Bank of Moscow (B-/B1) sold a $100 million offering of three-year putable eurobonds (B1//B-) at par to yield 9½%, according to a market source.

If the issue is not put, the coupon steps up to 10¼% in the second and third year.

CBOM Finance plc (Ireland) issued the bonds. Merrill Lynch was the bookrunner for the Regulation S transaction.

Out of Latin America, Brazilian beef producer and exporter Bertin Ltda. sold an upsized offering of $250 million in 10-year senior notes (Ba3/B+) at par to yield 10¼%.

The deal, increased from $150 million, priced at the tight end of price guidance, which was set at 10¼% to 10 3/8%.

Credit Suisse, Morgan Stanley and Standard Bank were joint bookrunners for the Rule 144A/Regulation S offering.

Mexico's Banco Mercantil del Norte (Banorte) sold a two-part tranche offering of $600 million in bonds.

The first tranche was made up of $400 million in 10-year bonds, which priced at par to yield 6.135%.

The second part included $200 million of 15-year bonds, which priced at par to yield 6.862%.

Credit Suisse was the lead manager for the transaction.

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