Emerging market debt up despite softer equities; corporates tap bond markets

By Reshmi Basu and Paul A. Harris

New York, June 9 - Emerging market debt rebounded Friday, a day after the asset class was shaken up by weaker equities.

In the primary market, Singapore's DBS Bank Ltd. sold $900 million of 15-year floating-rate notes (Aa2/A/A+) at par to bear a coupon of 61 basis points more than three-month Libor, according to a market source.

The issue will be callable in 2016. If not called, the coupon will step up to 161 basis points over Libor.

Morgan Stanley was the bookrunner for the Rule 144A/Regulation S transaction.

Also, Korea's NACF sold $400 million of 10-year bonds at Treasuries plus 124.6 basis points via BNP Paribas, Calyon and Merrill Lynch.

Out of Russia, Gazprombank (Baa2/BB), the finance arm of Russian gas monopoly OAO Gazprom, priced a $300 million issue of lower tier II subordinated debt securities at par to yield 7.97% on Thursday night.

The securities came at a 250 basis points spread to mid-swaps, on top of the price talk.

JP Morgan was the lead manager for the Regulation S only issue

Sources said the Gazprombank deal came cheap.

Volatility subsides

Meanwhile in trading, the recent volatility subsided on Friday, triggered by some short-covering, according to a trader, who added that volumes thinned out in anticipation of the opening World Cup soccer game between Germany and Costa Rica.

Emerging markets have endured a volatile week as U.S. equities whipsawed on continuing worries about a potential cool down in the U.S. economy and the undefined direction of U.S. monetary policy.

Even though global equities were down, emerging markets were up on the day, according to a sellside source.

At session's end, the spread on the JP Morgan EMBI Global index was five basis points tighter.

Latin American bonds also gained some traction. During the session, the Brazilian bond due 2040 was up 1.10 to 124.65 bid, 124.80 offered. The Colombian bond due 2033 gained 0.50 to 130 bid, 131 offered. The Venezuelan bond due 2027 added one point to 121 bid, 121.75 offered.

The sell-off in emerging markets may have subsided for the short-term, following this week's past rate hikes, according to an analyst.

Thursday saw the European Central Bank along with central banks in South Africa, South Korea and India raise key lending rates.

Nonetheless, fears of a U.S. economic slow down and inflationary pressure will continue to remain as an overhang in the market, according to another source.

Furthermore, the source warned that this is not the time for investors to bargain hunt, despite the more attractive valuations.

In the past month, spreads for the EMBI global index have kicked out by nearly 35 basis points.

But the source warned that volatility may resume as the market contends with more risk averse investors within all core financial markets.

"The market traded well today [Friday], but it's difficult to say whether the sell-off is over," according to the sellside source.

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