Emerging markets still spooked by Greece; primary quiet; MCE Finance could price next

By Christine Van Dusen

Atlanta, May 11 - The euphoria felt on Monday after E.U. officials agreed to a giant financial rescue plan for Greece and other troubled sovereigns was tempered somewhat Tuesday as investors thought about long-term stability and wondered whether the bailout would be effective enough, market sources said.

"I think it's a little bit of give-back from yesterday. The whole universe bounced yesterday, and today I think the longer-term implications weighed on everybody," a New York-based market strategist said. "Everyone came around to the realization that even though this took care of near-term liquidity issues, it doesn't do anything with medium-term solvency and fiscal issues."

But he wondered why emerging markets weren't continuing to rebound quite as strongly on the good news of Greece's bailout and the European Central Bank's decision to purchase sovereign debt.

"I don't understand why you would be selling off 100-plus points," he said. "This sort of takes the tail risk out of the equation, and I think emerging markets and markets in general should at least for now continue to bounce on the idea."

Investors shouldn't be so concerned about "the longer-term picture" right now, he said. "People are getting spooked again, even though the E.U. and ECB have gone a long way to mitigate those concerns."

Indeed, yields rose slightly on Tuesday as investors took a small step back from riskier assets. Yields on 10-year Treasuries edged up to 3.56% from 3.54% on Monday after last week's low of 3.27%. And 30-year Treasuries saw a yield of 4.44%, up from Monday's 4.41% and last week's low of 4.06%.

The markets had "a huge pop after the news from Europe, reopening higher by 3 to 10 points, depending on the bond," a London-based trader said. "We've sort of eased back from those levels, took a little breather and had some indigestion and today we're working through that and heading back north again."

Overall, trading on Tuesday was "going a bit better," he said near the European close. "In general the mood remains better. Everything is trading simply better."

But, he cautioned, "This doesn't mean our problems are solved."

Primary remains silent

New issuance remained at a standstill on Tuesday as issuers maintained a cautious wait-and-see posture.

"There's nothing happening in the primary market," the London trader said. "That part of the market has been switched off for a period with Greece and Europe falling apart."

And it's likely to remain quiet "for the immediate future, until this shakes out and as risk tolerance returns to the market," the strategist said. "In due time the issuance primary is going to pick right back up. There is still a global search for yield, and companies are increasingly tapping a very aggressive bond market to try to fund themselves. I don't see why, outside of near-term concerns, that would cease to be the case."

The London trader agreed: "In my world we'll start to see the names coming back," he said.

MCE pricing soon

He pointed to the planned benchmark-sized eurobond deal from Russia's Sberbank, which has been holding a roadshow this month via DZ Bank, JPMorgan and RBS. "They'll come to market, maybe next week sometime, I'm guessing," he said.

Another deal that could come to market soon is the planned $600 million in senior notes from MCE Finance Ltd. (Melco Crown Entertainment Ltd.). The Hong Kong-based developer, which operates casinos focused on the Macau market, has finished a roadshow via Deutsche Bank Securities, Bank of America Merrill Lynch, RBS Investment Bank, ANZ Investment Bank, Barclays Capital, Citigroup, Commerz, Credit Agricole, NAB Securities and UBS Investment Bank.

The deal has been talked at the 10½% area and could price as soon as Wednesday.

"That's coming in 100 basis points more than they would have paid a week ago," a market source said. "There's no buyers' strike."

The week might also see pricing from Odebrecht Finance Ltd., a financing unit of Brazil's Constructora Norberto Odebrecht SAB, which began a roadshow last week for a dollar-denominated offering of perpetual step-up notes.

Recently, market watchers speculated that the deal might be delayed, but "it hasn't definitely been postponed," a market source said. "So we'll see."

Mexico plans swap

Mexico plans to conduct a debt swap of up to 10 billion pesos of bonds due between 2016 and 2018 for 8% bonds due 2020, according to a statement on the Banco de Mexico website.

The exchange will take place Friday.

The 2020 bonds were first sold in February, a market source said.

© 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.