Argentina prices $738 million bonds in restructuring; Venezuela higher in active trading

By Paul A. Harris

St. Louis, June 2 - Emerging markets bond prices generally stabilized, on Wednesday heading into the New York close, according to market sources.

Oversold high-beta names - Venezuela conspicuous among them - improved in active trading.

Earlier, in the European afternoon, volatility was continuing to hold sway, in line with gyrating European stock markets.

Brazil's five-year credit default swaps were 138 basis points mid in the European afternoon, 3 bps wider.

Mexico's five-year CDS were 136 bps mid, 2 bps wider.

Russia's five-year CDS were 183 bps mid, 9 bps wider.

Gazprom's five-year CDS were 293 bps mid, 18 bps wider.

Heading into the European close, a Zurich-based trader, who focuses on Russian and CIS corporates, had seen very few bonds trading and noted that the market in Europe was mostly quiet. However, the trader noted cash bonds were pretty stable through the session.

"Right now there are no bonds offered by the brokers," the trader claimed.

Argentina prices 8¾% notes

Republic of Argentina priced approximately $738 million of 8¾% seven-year fixed-rate notes at 90.11 on Wednesday.

The notes were issued as part of Argentina's distressed sovereign debt restructuring.

Barclays Capital, Citigroup and Deutsche Bank were the bookrunners for the non-rated notes.

Subsequent to pricing, however, markets in the Argentina 8¾% sovereign paper due 2017 were sharply lower, according to a source, who spotted them at 79.50 bid, 81.50 offered.

Venezuela active

Meanwhile, another noted Latin American high-yield sovereign, Venezuela, saw bond prices improve in active trading, according to David Spegel, Global Head, Emerging Markets Strategy for ING.

The Venezuela EMBI Global sub-index was up 1.5 points on the day, Spegel said.

The further out on the maturity curve you looked, the more dramatic were the improvements in prices of dollar-denominated bonds.

Venezuela's 7¾% bonds due 2019 were up 1.25 points. The 9¼% bonds due in 2027 were up 1.5 points at 66 bid, 67 offered.

Meanwhile the 9 3/8% bonds due in 2034 were 2 points higher on the day.

"They were oversold," Spegel explained.

"Venezuela has been the worst performing country in the emerging markets asset class.

"Over the past two weeks Venezuela is down over 7%."

"But it was bound to turn around," the strategist added.

"As long as there is no default, you're getting a coupon. And Venezuela is now yielding 15%.

"Where do you get that, for an oil exporting credit?"

Primary quiet...for now

Meanwhile the primary market remains dead in the roiling waters of global capital markets volatility, Spegel said.

The most recent deal to price was Malaysia's $1.25 billion 3.928% sukuk due 2015 (A3/A-/), which came early in the pre-Memorial Day week.

That sukuk remained wrapped around issue price on Wednesday, Spegel said.

However, the primary market is apt to rekindle sooner than later, the strategist said.

"Investors are sitting on amortizations and coupon money that they eventually have to put to work, and it will go into the new issue market, not the secondary market," he said, adding that in April those ongoing sources of money represented a $9 billion build of cash that came in, but which the buyside was unable to reinvest, largely due to the virtual closure of the primary market.

And as for retail money moving in and out of the dedicated emerging markets mutual funds, those flows have been neutral, he added - unlike the flows of the high-yield mutual funds, which have sustained three consecutive weeks of substantial outflows.

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