Emerging market debt softer as Treasuries cross 4.86%; South Africa sells €750 million in 10-year bonds

By Reshmi Basu and Paul A. Harris

New York, March 30 - Emerging market debt was softer Thursday on the back of weaker U.S. Treasuries.

On the primary issuance front, the Republic of South Africa sold a €750 million offering of 10-year global bonds (Baa1/BBB+) at 99.173 to yield 62 basis points more than euro mid-swaps.

The deal priced in the middle of price guidance, which was set at 60 to 65 basis points more than euro mid-swaps.

Deutsche Bank and Standard Bank were joint bookrunners.

Proceeds will be used for general government purposes.

And Singapore's Chartered Semiconductor Manufacturing Ltd. sold $300 million in senior notes due 2013 (Baa3/BBB-) at 99.053 to yield 6.42% or 157 basis points more than Treasuries.

Goldman Sachs & Co. was the bookrunner for the transaction.

Proceeds will be used to repay bank debt.

EM weaker as U.S. Treasuries slide

U.S. Treasuries were slammed Thursday as an upward revision to fourth quarter inflation data stoked fears that the Federal Reserve would move ahead with its current monetary tightening campaign.

The yield on the 10-year note stabbed a 21-month high of 4.86%, up from Wednesday's close of 4.80%.

Core markets as well as emerging market debt saw a volatile session, observed market sources. Moreover, political uncertainty out of Brazil continued to dampen investors' appetite for risk.

"Brazil has been sort of weak," said Enrique Alvarez, Latin America debt strategist for IDEAglobal.

Brazil was slightly higher in the morning, but once Treasuries began to lose ground Brazil followed suit.

During the session, the Brazilian bond due 2040 lost 0.05 to 128.30 bid, 128.40 offered.

Another source noted that most of the country's sovereign curve was lower on the day. He spotted the Brazilian bond due 2020 at 148.50 bid, 149.50 offered, down 0.50. Other losers included the bond due 2030, which was quoted at 152 bid, 153 offered, down 0.50. And the bond due 2034 was spotted at 110.25 bid, 110.50 offered, down 1 point.

Latin America tighter on day

Despite Brazil's weakness, Latin America was slightly tighter for the day.

"There's some credit differentiation going on because you see Brazil is losing a lot more ground than the other credits," noted Alvarez.

Other credits within the Latin American world are looking to be less susceptible to Treasuries, he observed.

For instance, oil exporters such as Ecuador and Venezuela are enjoying the benefit of higher prices as oil reached $67 per barrel Thursday.

At session's end, the Ecuadorian bond due 2012 was up 0.25 to 105 bid, 106 offered while the bond due 2030 had added 0.25 to 100 bid, 100.50 offered.

Meanwhile the Argentinean par bond due 2033 moved up 0.30 to 98 bid, 98.45 offered. And the Uruguayan bond due 2033 was bid at 103.50 bid, 104.50 offered, up 0.50.

One reason behind Brazil's underperformance is that the country has to contend with Monday's resignation of finance minister Antonio Palocci on top of Treasury weakness.

Investors are unsure as to where Palocci's successor, Guido Mantega, former head of the national development bank, will stand on fiscal policy. Mantega has said that he would fulfill the primary surplus target, hoping to reassure investors that he would not abandon austere fiscal and monetary targets.

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