Emerging market debt rallies on FOMC outlook; Lebanon to issue bonds

By Reshmi Basu and Paul A. Harris

New York, April 18 - Emerging market debt jumped higher Tuesday after minutes from the latest Federal Open Market Committee meeting suggested that the Fed's monetary tightening campaign is nearing its end.

In the primary market, the Republic of Lebanon plans to issue up to €800 million of debt in a reopening of its 5 7/8% euro-denominated bonds due 2012 and 8¼% dollar-denominated bonds due 2012.

Bank Audi, Byblos bank, Fransabank and Bank Med are managers for the deal.

Also adding to the pipeline, Indonesia's PT Arpeni Pratama Ocean Line Tbk is marketing a $160 million offering of seven-year guaranteed notes (//BB-).

The roadshow is expected to conclude on Tuesday, with the bonds pricing afterwards.

Citigroup has the books for the Rule 144A/Regulation S offering.

And Russian Standard Bank plans to start a roadshow next week for a dollar-denominated offering of five-year notes.

Deutsche Bank and Dresdner Kleinwort Wasserstein are the joint bookrunners for the Rule 144A/Regulation S transaction.

FOMC puts a smile on EM

The stars were aligned for emerging markets Tuesday, noted sources. The market was supported by higher commodity prices, promising U.S. economic data and evidence of dovish sentiment at the last FOMC meeting. That translated into a rally for both local and external markets.

The market cheered as the Fed looks to be ending its recent monetary tightening campaign. Investors focused on the following statement from the minutes of the Fed's most recent meeting in late March: "Most members thought that the end of the tightening process was likely to be near, and some expressed concerns about the dangers of tightening too much, given the lags in the effects of policy," according to the minutes released at 2 p.m. ET.

Tuesday's trading saw a steeper Treasury curve and a slight pullback in the 10-year Treasury note, remarked a source, which helped emerging market spreads tighten.

"The minutes were pretty conclusive that the Fed is close to being done," which helped soak up some of the uncertainty in emerging markets, said a trader.

Nonetheless, with spreads still tight, it is hard for the market to grind tighter, he added.

"Since the [FOMC] headlines hit, it seems that long-dated sovereigns (10 years and out) are up about ½ a point while corporates are up marginally," observed an emerging markets analyst.

The spread on the JP Morgan EMBI Global index tightened by four basis points versus Treasuries. Furthermore, the main benchmarks in Latin America were among the biggest winners during the session. According to the index, Brazil and Mexico gained 0.8% and 0.4% respectively.

In late trading, the Brazilian bond due 2040 was quoted at 128.20 bid. 128.30 offered, up 1.10.

Argentina, oil names strong

Argentina was the best performer for the session. Its component of the JP Morgan EMBI index tightened by 12 basis points. The Argentinean discount bond due 2033 was spotted at 99.50 bid, 99.75 offered, up 1.75.

Oil producers also ratcheted gains as oil prices topped $71.15 per barrel on jitters over Iran's nuclear program and supply disruptions in Nigeria.

At the end of the session, the Ecuadorian bond due 2015 was up 1.25 to 105 bid, 106 offered while the bond due 2030 had gained 1.10 to 100.70 bid, 101.35 offered. The Venezuelan bond due 2027 was up 1.10 to 125.05 bid, 125.50 offered while the bond due 2034 was higher by 2.15 to 126 bid, 126.65 offered.

Columbia gains

Meanwhile Colombia reversed Monday's losses. The Colombia bond due 2033 added 2 points to 135.75 bid, 137 offered.

On Monday, the country underperformed the market, stemming from volatility in its currency market, which in turn is making it more susceptible to movements in U.S. Treasuries. Since February, the Colombian peso has sold off by 100 pesos versus the dollar, according to a Bear Stearns report.

"I think the Colombia peso is closer to fair value here, but I wouldn't be surprised to see USD/COP trade back to around COP2320 or so on profit-taking on USD longs," noted another emerging market analyst.

"With so many other liquidity-sensitive assets doing well in the last few days (commodities, EM external debt, the VIX, etc.), the peso should also manage to recover some of the ground it lost.

"There's already a recovery underway in some global currencies like MXN, AUD, NZD, HUF, etc., and COP should get caught up in that turnaround."

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