Emerging markets activity flat; new VTB notes due 2015 dip below par; EM funds see inflows

By Paul A. Harris

St. Louis, Feb. 26 - Emerging markets debt passed a quiet Friday and was largely unchanged on the day, according to a syndicate banker in New York.

During the afternoon in Europe, Brazil's five-year credit-default swaps were 1 basis point wider, at 134 bps mid. However Brazil's five-year CDS were unchanged on the week.

Russia's five-year CDS were 185 bps mid by Friday afternoon in Europe, 1 bps wider on the day but 2 bps tighter on the week.

Mexico's five-year CDS were 131 bps mid, 2 bps wider on both the day and the week.

Argentina's five-year CDS were 1,211 bps mid, 5 bps wider on the day and 98 bps wider on the week.

OAO Gazprom's five-year CDS were 259 bps mid, 2 bps wider on the day but 5 bps tighter on the week.

Funds see biggest start since '06

Dedicated emerging market bond funds saw $493.4 million of inflows in the most recent week, according to EPFR Global.

Of that amount, hard currency funds saw $99.4 million of inflows. Local currency funds saw $287.3 million. And blended funds saw $106.7 million.

The combined $493.4 million takes year-to-date inflows to $3.5 billion.

That's the largest volume of cash that has flowed into the dedicated emerging market bond funds during the opening two months of all years going back to 2006, according to EPFR's Brad Durham.

During January and February of 2006, the dedicated emerging markets bond funds saw inflows totaling $3.58 billion.

New VTB seen below issue price

The new JSC VTB Capital 6.465% loan participation notes due 2015 (Baa1/BBB/BBB), which priced Thursday at a 385 bps spread to mid-swaps in a $1.25 billion issue, slipped below the par issue price on Friday, according to a sellside source.

The bonds were 99.80 bid, 99.90 offered, the source added.

VTB deputy chairman and chief financial officer Herbert Moos characterized the issue as "the largest offering from a financial institution from the CIS and CEE regions in 2010."

"It is a breakthrough for VTB," he added.

"Despite aggressive pricing the transaction generated strong global interest and enjoyed a high-quality order book with more than 350 orders resulting in a tightening of the VTB secondary curve. The transaction attests to the confidence that international investors have in the strength of the VTB's credit," he said.

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