Emerging market debt holds onto rally; Venezuela sells €1 billion 10-year bonds at 7.10%

By Reshmi Basu and Paul A. Harris

New York, March 7 - Emerging market debt scored more gains Monday as the market continued to rally on Friday's non-farm payroll numbers.

"Emerging markets continues to do well," said a sell-side source in the morning - although he noted the market was quiet.

"The Brazil 2040 is up 0.65 now. Everything is tighter. [U.S.] Treasuries are doing pretty well also.

"The 10-year Treasury just went below 4.30%. So the market is in a pretty good mood," said the source.

By the end of Monday's session, the yield on the 10-year note was at 4.30%, down from 4.31% at Friday's close.

However, the U.S. Treasury market may erase some gains this week on new supply concerns. The Treasury Department plans to sell $15 billion of new five-year notes on Wednesday and $9 billion more of its earlier auctioned 10-year notes on Thursday.

In trading Monday, emerging market debt extended its gains from Friday. The Brazil bond due 2040 added 0.95 to 118.90 bid. The Mexico bond due 2009 gained 0.20 to 120.60 bid. The Russia bond due 2030 moved up 1.02 to 106.62 bid.

On Friday, payrolls in the United States added 262,000 jobs in February, which sparked a rally in both U.S. Treasuries and emerging markets.

"It's the Goldilocks number," noted a buyside source. "Not too hot. Not too cold. It was perfect," he observed.

But the numbers do not deliver market direction, he added.

"It's still important what the Fed does. We need more data. The market seems to have a lot more short bonds than I thought it was.

"The fundamentals are pretty strong. I'm just amazed by how short people are."

Venezuela sells €1 billion 10-year notes

In primary action Monday, the Bolivarian Republic of Venezuela priced €1 billion of 10-year bonds (B2/B/B+) at 99.301 to yield 7.10%. The country originally planed to issue €500 million, according to a press release issued by the ministry of finance on its website. There was €4.5 billion in the books.

The coupon is believed to be the lowest for any issuer in the region, except Mexico, since 2004.

A market source told Prospect News that it was no surprise that Venezuela came to market.

"The paper is more attractive, given the windfall from oil prices," he said.

Nonetheless, the buyside source said the surge in oil prices was not enough incentive for him to play. The politics of Venezuelan president Hugo Chavez kept him away.

"It's run by a man whose hero is Fidel Castro," he said.

While oil prices may mitigate the Chavez factor, what happens when oil prices are low, he asked.

"If you look at most of the Latin euro-denominated bonds right now, they are sort of trading through dollars," said a sellside source.

"The Brazil euro is trading 20 basis points through dollars. Venezuela, 25 basis points wide of dollars, looks quite generous."

There were buyers from more than 30 countries for the deal, including England, the United States, Switzerland and Germany, according to the ministry of finance. There were also buyers from South Africa, China, Israel and Brazil and other Latin American countries.

Buyers included institutions, banks and investment funds.

The ministry said it expected a very liquid secondary market.

It also said that the offering extended the maturity profile of Venezuela's euro debt and reduced the cost of financing as well as creating a euro benchmark for Venezuela.

Deutsche Bank Securities and UBS Investment Bank managed the sale.

Proceeds from the sale will be used to finance debt payments

Noble a good buy, says investor

Singapore's Noble Group is currently in the midst of marketing an offering of $500 million senior notes due 2015 (expected ratings Ba1/BB+).

One buyside source said he was considering playing in the issue, given the company's business model.

"There's a Swiss company Glencore that we own - very similar business models. Good business models. No debt. That's what you're looking for," he said.

Glencore International AG is Switzerland-based commodities trading house.

JP Morgan is running the Rule 144A/Regulation S issue for Noble Group.

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