Emerging market debt softer; Argentina slammed; NKNK issues $200 million in bonds

By Reshmi Basu and Paul A. Harris

New York, Dec. 16 - Emerging market debt saw spreads widen Friday, unable to keep pace with rising U.S. Treasuries.

In the primary market, NKNK Finance plc, a financing subsidiary of Tatarstan rubber and petrochemical producer AOA Nizhnekamskneftekhim, sold $200 million of 10-year amortizing notes (B1//B+) at par to yield 8½% via MDM Bank.

The deal came in line with guidance of 8½%.

U.S. Treasuries ended the week higher, as emerging market debt closed out the week softer. The yield on the 10-year Treasury note stood at 4.44% by the end of Friday's trading, improved from Thursday's 4.46% and down 10 basis points from last Friday's 4.54%.

Overall, emerging market spreads have widened on profit taking as year-end approaches, said a source. That trend was in evidence for much of the week.

Brazil was softer for the day.

Argentina down on IMF repayment

But it was Argentina that was slammed during a volatile session.

"Argentina was shoved around a lot today," remarked a trader, who added that investors were spooked by the country's decision to repay its entire debt owed to the International Monetary Fund.

On Thursday after market close, president Nestor Kirchner surprised investors by announcing that Argentina would pay the entire $9.9 billion owed to the IMF in the next two weeks and would do so by dipping into its $26.7 billion reserve.

The prepayment decision creates some vulnerability for the country's currency and its bonds, given the year-end profit taking, noted a source.

"Argentina got lashed early on," said a buyside source, adding that its spreads blew out by 20 basis points.

"It's the one that's really off," he noted.

At late trading, the Argentine discount bond due 2033 was spotted at 81.05 bid, 82.25 offered, down 1¾ points while its par bond due 2038 was quoted at 32 bid, 32½ offered, down three-quarters of a point.

"Argentina is lower. Brazil is slightly lower. We probably underperformed Treasuries a little bit today [Friday]," observed the trader.

During the session, the Brazil bond due 2040 was off by 0.45 to 125.55 bid, 127.70 offered.

Overall, Friday saw spreads widen by two basis points. The JP Morgan EMBI+ Index was down 0.11% while Brazil's component of the EMBI fell 0.27%.

Russia better on upgrade

Meanwhile, Russian bonds nudged higher a day after Standard & Poor's surprised the market by lifting the country's long-term foreign currency sovereign credit rating to BBB from BBB-.

At session's end, the Russia bond due 2030 gained a quarter of a point to 111¾ bid, 112¼ offered.

Elsewhere in Asia, the Philippines bond due 2025 added a quarter of a point to 123.62 bid, 124 offered.

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