Funds see 189-week high inflow of $727 million; emerging markets weakness continues into Friday

By Paul A. Harris

St. Louis, Sept. 25 - Emerging markets debt was weaker on profit-taking and in conjunction with weakness in European and U.S. equities on Friday, sources said.

In the New York afternoon the EMBI Global Diversified index was at 344 basis points bid, 5 bps wider on the session, according to a market source.

Venezuela and Argentina, high-beta Latin American names, were both down 0.5%, according to David Spegel, global head, emerging markets strategy, for ING.

Russia was down 3.5% on the day, Spegel added.

From Asia, the new National Agricultural Cooperative Federation (NACF) dollar-denominated 5% notes due 2014, which priced in a $500 million issue at a 268 bps spread to Treasuries, were weaker during the European session, according to a market source in London.

During the Thursday session in the United States that paper had traded as tight as 238 bps, according to a trader in New York.

However the source in London saw the bonds at 253 bps bid, 251 bps offered on Friday.

Meanwhile the primary market remained quiet.

Funds see 189-week high

Flows into dedicated emerging markets bond funds for THE week ending Sept. 23 hit a 189-week high of $727 million, according to data service EPFR Global.

The inflow took year-to-date net inflows up to $1 billion, a fact made all the more remarkable given that the fund group saw big outflows during the first quarter of this year.

EPFR currently tracks 576 funds with assets of $54.67 billion under management on a weekly basis, and 693 with assets under management of $67.87 billion monthly.

The week ahead

In the September-October crossover week, Empresa Brasileira de Aeronáutica SA (Embraer) will market an offering of dollar-denominated global bonds due 2020.

Deutsche Bank Securities and Morgan Stanley are running the Securities and Exchange Commission-registered deal.

The size of the transaction is expected to be a minimum of $500 million, a market source said.

Proceeds will be used for general corporate purposes, which may include refinancing the debt of Embraer and its subsidiaries and/or funding working capital needs and capital expenditures.

Elsewhere Pacific Rubiales Energy Corp. will begin a non-deal roadshow on Monday in London.

Bank of America Merrill Lynch will lead the presentations.

Subsequent dates are set for Tuesday in London, Wednesday in Boston, Sept. 30 in New York, Oct. 1 in Los Angeles and Oct. 2 in San Francisco.

The issuer is Colombia's second largest oil and gas company.

Venezuela deal speculation

Turning to sovereigns, and farther out along the timeline, Venezuela could be coming with as much as $4 billion of global bonds, according to a market source who added that, should they come, it would be Venezuela's first dollar-denominated deal in more than a year.

Venezuela must raise cash in the international markets in part to offset the hemorrhaging of its own currency which has taken place in the wake of oil prices that have fallen by more than 50%, the source said.

Nearer term, Venezuela is expected to sell as much as VEB 12.15 billion ($5.7 billion) in the local markets, the source said.

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