Emerging market debt on better footing; Korea South East Power sells $300 million bond

By Reshmi Basu and Paul A. Harris

New York, May 18 - Emerging market debt was firmer Thursday, a day after being pummeled by market reaction to the release of the U.S. consumer price index, which further built the case for more hikes in the fed funds rate.

In the primary market, Korea South East Power Co. Ltd. sold a $300 million issue of 10-year bonds (A2/A-/A-) at a price of 99.208 to yield mid-swaps plus 47 basis points via Barclays Capital, Citigroup and Credit Suisse.

Meanwhile emerging market debt recovered on the back of a rebound in U.S. Treasuries.

However, market sources observed that the market is jittery as investors look for some sort of clarity as to the direction of the U.S. economy and interest rates.

The daily contradictions in U.S. economic data have been "taxing and worrisome," according to a trader.

Nonetheless, the release of soft economic data Thursday - specifically, initial jobless claims and parts of the Federal Reserve's Philadelphia manufacturing report - helped push down Treasury yields to a more comfortable level on renewed speculation that the U.S. economy is slowing down. At session's end, the yield on the 10-year note stood at 5.07%, down from Wednesday's close of 5.15%.

Another trader noted that the recent sell-off must be taken into context because the market was "overvalued in my opinion," and a "correction was somewhat needed."

Moreover on Thursday, the market was on a better footing as "bargain hunters" looked to pick up, he added.

On Wednesday, the benchmark Brazilian bond due 2040 lost more than 2¼ points to 124 bid, the lowest level since December. On Thursday, it erased some of its losses, adding 0.40 to 124.50 bid, 124.55 offered. The Argentinean discount bond due 2033 gained 1.75 to 94 bid, 94.75 offered.

On to the local front, Argentina's domestic bonds were a tad higher as local pension funds upped demand. However, after the close, bonds prices plunged, according to a market source.

Back to the external market, the Mexican bond due 2026 moved up 0.50 to 150 bid, 151 offered. The Russian bond due 2030 was higher by one point to 107.125 bid. 107.75 offered.

Meanwhile one emerging market analyst recommended that since spread curves across the asset class are near all-time flat levels, investors should be buying curve steepeners.

In other developments, the latest opinion poll in Peru has former president Alan Garcia with 56% of the vote versus 44% for nationalist Ollanta Humala in the June 4 run off. On Sunday, both candidates will face off in a presidential debate, in hopes to persuade undecided voters.

By session's end, the Peruvian bond due 2033 had gained 1.10 to 113.50 bid, 114.25 offered.

Colombia, Turkey dip

Nonetheless there were some losers during the session. Both Colombia and Turkey saw their bond prices fall.

In Colombia, the central bank is expected to lift the repo rate by 25 basis points to 6.5% next week, following the recent round of peso volatility, according to an analyst report.

At session's end, the Colombian bond due 2033 shed 0.75 to 130.50 bid, 131.50 offered.

Finally, political jitters stemming from Wednesday's slaying of a judge kept the Turkish lire under pressure.

At the close, the Turkish bond due 2030 was down 0.63 to 143.625 bid, 144.125 offered.

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