Emerging market debt solid with Treasuries; Woori Bank sells $1 billion in notes

By Reshmi Basu and Paul A. Harris

New York, April 27 - Emerging market debt clocked in another positive session Thursday, as U.S. Treasuries rallied in response to comments made by Federal Reserve chief Ben Bernanke.

In the primary market, Seoul-based Woori Bank sold a $1 billion offering of lower tier II subordinated 10-year notes (Baa2/BBB+) at 99.89 to yield a spread of Libor plus 67 basis points.

Price guidance was set at the Libor plus 70 basis points area.

Deutsche Bank, Goldman Sachs, Morgan Stanley and Woori Securities were the lead managers for the issue.

And Abu Dhabi Commercial Bank (Aa3/A) sold a $400 million offering of 10-year floating-rate notes at 99.781 to bear a coupon of 60 basis points more than Libor via Deutsche Bank.

Asian deals performing well

New deals out of Asia this week have performed well, according to a trader who focuses on Asian credits.

"The trend, on both the high-yield and high-grade deals, is that they have gone well.

"That has given some confidence in the market generally, and also sparked some interest in secondary spreads.

"Overall it has been quite constructive to the market," he added.

Recent transactions from Korea's KT Corp. and Indonesian shipper Arpeni Pratama Ocean Line Investment BV have moved up in the secondary.

On Wednesday, KT Corp. sold a $200 million issue of 10-year notes (A3/A-) at 97.743 to yield Treasuries plus 110 basis points or 6.161%.

The deal was trading four or five basis points tighter Thursday morning, commented the trader.

Meanwhile on Tuesday Arpeni Pratama priced a $160 million issue of seven-year senior notes (/BB+/BB-) at 98.976 to yield 8.95%.

The trader observed that the new issue traded pretty well on the break, quoting the price at 99.125 bid, 99.625 offered Thursday.

EM positive on Bernanke

Emerging market debt continued to ride into positive territory Thursday on the back of lower yields in U.S. government debt. Treasuries gained on hints made by Federal Reserve chairman Bernanke that there might be a pause in the current tightening cycle.

However, he gave the central bank some maneuvering room by suggesting that the Fed may hike rates further down the road.

"Of course, a decision to take no action at a particular meeting does not preclude action at subsequent meetings," Bernanke told the congressional joint economic committee.

At session's end, the yield on the 10-year Treasury note fell to 5.09% from Wednesday's close of 5.11%.

Emerging markets "was relatively quiet, just tracking Treasuries market," noted a buyside source.

On Thursday, the JP Morgan EMBI Global Diversified index tightened one basis point to 186 basis points versus Treasuries while the return was positive 0.2%.

Latin America advances

Meanwhile there were no underperformers in the Latin American region as most credits advanced, according to Enrique Alvarez, Latin America debt strategist for research firm IDEAglobal.

Another source noted that Peru was the star performer as its spreads tightened by eight basis points versus Treasuries in response to the announcement of a better-than-expected fiscal outlook.

With spreads for Latin America so tight, there appears to be little room for the region to grind tighter.

"If you look at the different credits out there that are not investment grade... spreads are very tight on a historic basis," remarked Alvarez, referring to names in the double-B space such as Brazil, Colombia, Panama, Peru and Venezuela. And while Venezuela is not a full-fledged double-B name, it is trading inside of levels for that rating.

The difference in Thursday's session compared to previous days is that Bernanke has suggested a pause in rate hikes, noted Alvarez. And the market is buying into that scenario and sidestepping the inflation story because it believes that the Fed chief is keen on pausing, he added.

As Treasury yields come down, it makes it slightly easier for the region to tighten. Earlier in the week, it looked as if the 10-year note could pierce 5.25%.

"It's still sort of difficult to rationalize that spreads would be any tighter than where we already stand," Alvarez noted.

Sovereigns trading well

Overall, sovereigns have been trading very well, despite Treasury weakness, according to the trader quoted above.

Even prior to Bernanke's testimony, sovereign prices were holding pretty well in the face of soft Treasuries.

"There is good buying going on. There are obviously a fair number of synthetics being printed in numerous markets - high grade and EM and high-yield - and that is giving an additional bid to the cash market," observed the trader.

"There does not seem to be a lot of selling pressure in these markets at the moment. If anything real money accounts are looking for some weakness to buy into."

In other developments, Russia said it plans to prepay the all of its Soviet era Paris Club debt, which resulted in a rally in the German Aries debt linked to Russia's obligations.

The spread for the Aries bond due 2014 was tighter by eight basis points.

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