Emerging market debt gives up gains on risk aversion; Lai Fung sells $200 million notes

By Reshmi Basu and Paul Deckelman

New York, March 30 - Emerging market debt eased slightly as Friday's session came to a close, with investors squaring away positions ahead of the weekend while tensions escalated in the Middle East.

In the primary market, Lai Fung Holdings Ltd. sold a $200 million offering of seven-year fixed-rate senior notes (B1/B+) at par to yield 9 1/8%.

The deal came at the low end of price guidance for a yield in the area of 9¼%.

Proceeds from the sale will be used towards the acquisition of land and property projects, for project development, for property improvements and for general working capital purposes.

Deutsche Bank and HSBC were joint bookrunners for the deal.

The Hong Kong-based issuer is involved in the development of properties and investment in service apartments and commercial and office building in China.

Risk concerns undo gains

Returning to secondary trading, emerging market saw spreads unchanged at the end of the session Friday, following a volatile day for the U.S. Treasury market, which witnessed flight to safety trade towards the end.

Earlier in the session, emerging market bonds rose as the outlook for the U.S. economy "didn't look as bad as previously thought," said a market source.

The Chicago purchasing managers index rose to 61.7% from 47.9%, which suggested that the U.S. economy still had some zest as expansion in the Midwest surpassed market expectations.

Separately, inflation data came in line with consensus. The Commerce Department reported that the core personal consumption price index increased 0.3% in February,

But later in the session, rising tension in the Middle East put a cap on investors' appetite for risk, remarked the source.

"The market is still trading in tight ranges," noted a buyside source.

Among benchmark names, the bellwether Brazilian bond due 2040 gained 0.15 to 134.85 bid, 134.90 offered. The Argentine discount bond due 2033 added 0.30 to 116.30 bid, 116.80 offered. The Colombian bond due 2033 gave up 0.70 to 144.70 bid, 145.30 offered.

"We're comfortable sitting on our positions. We're also comfortable with the U.S. economic picture, but we don't feel it's wise to add to more risk, given all the uncertainties," the source added.

In the last week, investors have had to face a confluence of risks such as escalating geopolitical risk in the Middle East and the murky picture for the U.S. economy. And on Friday, sentiment was weighed down by news that the United States government has chosen to hit China with economic sanctions.

"It's hard to find the driver that will push the market higher. Spreads are tight. We're flirting with another record low," the buyside source added.

"But there are quite a few risks on the external side that could spook the market."

EM funds sees $170 million enter

Meanwhile emerging market debt has seen thin trading volumes since the prolonged sell-off that took place in February, although this week saw a bit of a pick up in cash entering the asset class.

Emerging markets bond funds posted inflows of $170 million for the week ending March 29, reported EmergingPortfolio.com Fund Research.

That was a sharp improvement on the previous week, which saw muted inflows of $44 million.

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