Emerging market debt higher on U.S. Treasuries rally; upgrade for Ecuador

By Reshmi Basu and Paul A. Harris

New York, Jan. 24 - Emerging market debt moved higher Monday, as the gloom over higher interest rates and a supply glut subsided for the meantime.

"People are less concerned with interest rates," said a sellside source.

"Treasuries are going down [in yield terms]. So they [EM investors] are trying to catch up with the small rally from the Treasuries," he said.

The yield on the 10-year Treasury note stood at 4.12% on Monday, down from 4.15% on Friday's close.

The improved interest rate picture coupled with limited dollar-denominated issuance this year has helped push prices higher, added the sellside source.

"There has been very low supply to the market. Brazil did a euro bond last week, and it seems that it will put them away from the dollar market for quite awhile," he noted.

The country priced a €500 million 10-year bond at a reoffer price of 98.80 to yield 7.55% and a spread of 398.5 basis points over the 10-year Bund last Thursday.

"The year started kind of soft. The first issuers who came to the market, were UMS [Mexico] and Cabei," said the sellside source.

Both issues saw less than stellar order books, he said.

On Jan. 4, The United Mexican States re-opened its bonds due March 2015 (Baa2/BBB-) with an additional $1 billion via Citigroup and JP Morgan.

The add-on was priced at 107.10 to yield 5.694% or a spread of Treasuries plus 145 basis points.

On the same day, the Central American Bank for Economic Integration (Cabei) priced $200 million seven-year notes at 99.425 to yield 4.973% or a spread of Treasuries plus 93 basis points via Citigroup.

"Then Turkey came but their price guidance was too wide, so that helped them get a huge book," remarked the sellside source.

On Jan. 13, The Republic of Turkey priced an upsized $2 billion global bond due 2025 (B1/BB-/BB-) at 98.507 to yield 7.52%.

The deal, upsized from $1.5 billion, came in tighter than price guidance of 7.60% area. The book size was $11 billion.

Citigroup and Morgan Stanley ran the deal.

"I guess people have been seeing very soft books in the [dollar] bond market and that has been driving them to go to the euro market," he noted.

The next sovereign in line to tap the euro market is the Republic of Lithuania with an offering of €600 million 11-year notes (A3/A-/A-)

The roadshow kicks off in Helsinki and Copenhagen next Monday, then moves to Frankfurt on Tuesday, then stops in the Netherlands, Zurich and Vienna on Wednesday, and finishes off in London on Thursday.

Deutsche Bank and UBS Investment Bank are running the Regulation S sovereign deal.

Next, the Republic of Hungary starts marketing for its 10-year dollar-denominated bonds (A1/A-) Monday in San Francisco and Los Angeles.

The roadshow will then stop in Boston on Tuesday and wrap up in New York on Wednesday.

Pricing is expected later in the week.

Deutsche Bank and Morgan Stanley Dean Witter are managing the deal.

And investors may see a deal from the Philippines. The finance secretary Eric Recto said a $1 billion overseas tap is "very imminent," according to a market source.

The bond issue could come as soon as this week.

Upgrade for Ecuador

During Monday's action, Standard & Poor's lifted Ecuador's long-term foreign and local currency credit rating to B- from CCC+ on an expected $400 million cash infusion from the World Bank and Inter-American Development Bank as well as from oil exports.

The upgrade helped Ecuador's paper surge. The bond due 2030 added 2.05 points to 91.65 bid although the bond due 2012 was down 0.15 to 104.25 bid. The government is expected to exercise a call option on the 2012 bond in May.

Other bonds from Latin America were up. The Brazil C bond moved two points higher to 99.812 bid while the bond due 2040 gained 1.10 to 115.35 bid. The Venezuela bond due 2027 was bid at 103.35, up 0.60.

Meanwhile, despite pensioner protests across Russia, the bond due 2030 rose 1.12 to 104.37 bid.

"People are starting to get a grip because they were very nervous with all the news and economic indicators. So they are starting to get a look at the market and at what are the opportunities out there," said the sellside source.

"There's some real money today [Monday]. And people are starting to see their relative value trade between parts of the curve.

"Since the curve has been flattening, people are making trades in between the curve."

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.