Emerging market debt trades in tight ranges; corporates added to the pipeline

By Reshmi Basu and Paul A. Harris

New York, April 4 - Emerging market debt traded sideways Tuesday in another quiet session, as investors were unwilling to add risk ahead of Friday's release of U.S. non-farm payroll numbers.

On the primary issuance front, new details emerged on several corporates.

Brazilian media company Globo Comunicacao e Participacoes set price guidance for a $250 million offering of perpetual fixed-rate senior unsecured securities (/BB-) at 9¼% to 9½%.

The roadshow is scheduled to wrap up in Lisbon on Thursday.

Deutsche Bank and Goldman Sachs are running the Regulation S transaction.

Also out of Brazil, BNP Paribas SA (Aa2/AA) plans to issue a real-denominated offering of bonds due April 2008.

Price guidance has been set at 13.20% to 13.70%.

Payments will be made in dollars.

BNP Paribas is the bookrunner for the Regulation S transaction.

Elsewhere in Argentina, mortgage lender Banco Hipotecario SA started a roadshow for a $250 million offering of 10-year bullet bonds (/B/) on Tuesday in Hong Kong.

The roadshow wraps up in New York and Boston on April 11.

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

Using part of the proceeds, the Buenos Aires-based issuer plans to tender up to $82.5 million of its 5% notes due 2013 and up to $82.5 million equivalent of its 5% euro-denominated notes due 2013.

Next, Mexican housing construction company Urbi Desarrollos Urbanos SA de CV is expected to begin a roadshow this week for its $200 million maximum offering of 10-year senior unsecured guaranteed notes (Ba3).

Merrill Lynch & Co. has the books. UBS is a co-manager.

Out of China, property developer Shanghai Real Estate Ltd. plans to sell $150 million of seven-year bonds (Ba3/BB-) next week.

Deutsche Bank and Morgan Stanley are the lead managers for the Regulation S transaction.

Moving to Saudi Arabia, Riyad Bank plans to start a roadshow for a dollar-denominated benchmark-sized offering of five-year senior floating-rate notes (/A/A) this Wednesday in Singapore.

The issuance will come off the issuer's inaugural euro medium-term note program.

Banc of America Securities Ltd. and JP Morgan are running the Regulation S deal.

And ALB Finance BV, a Netherlands-based special purpose vehicle of JSC Alliance Bank of Kazakhstan, began a roadshow Tuesday in Hong Kong for its dollar-denominated two-part offering of notes.

Subsequent roadshow stops are scheduled for Wednesday in Singapore, Thursday in Germany and Austria, Friday in Switzerland and Monday in London.

The offering includes a five-year to seven-year tranche of senior notes (Ba2/BB-). The size of the tranche remains to be determined.

Alliance Bank also plans to place a $150 million tranche of tier I subordinated perpetual notes, non-callable for 10 years (B1).

Credit Suisse and UBS are leading both tranches, which are being marketed via Regulation S.

EM trades sideways

Emerging market debt continued to trade in narrow ranges Tuesday during a subdued trading session, observed a trader.

The JP Morgan EMBI Global Diversified index ended the session flat. According to one source, spreads on the index have been plus or minus five basis points since March 7 at around 200 basis points more than Treasuries.

Another market source observed that during the trading day, off the run names underperformed while the Street was selling its holdings.

During Tuesday's session, the Brazilian bond due 2040 added 0.30 to 128.50 bid, 128.55 offered. The Argentinean bond due 2033 moved up 0.40 to 98.50 bid, 98.90 offered. The Russian bond due 2030 lost 0.25 to 109.438 bid, 109.50 offered.

Meanwhile Ecuador gained Tuesday, a day after it was market underperformer. The Ecuadorian bond due 2030 added 0.25 to 100.30 bid, 100.95 offered.

Peruvian bonds continued to slip on election uncertainty. The Peruvian bond due 2033 shed one point to 110 bid, 110.50 offered.

In another development, embattled Thai prime minister Thaksin Shinawatra said he would step down following the April 2 elections.

His departure clears the path for party nominees to hold a forum to reform the constitution, according to a market source. New elections could happen in nine to 12 months.

During the session, the Thailand bond due 2013 added 0.01 to 105.658 bid, 106.583 offered.

Subdued trading until Friday

During the session, the attention of the asset class was divided, according to Enrique Alvarez, Latin America debt strategist for think tank IDEAglobal.

Emerging markets debt is balancing the influences of two divergent performances. On one hand, the U.S. equity market showed a strong performance Tuesday as the Nasdaq posted a five-year high. But then yields on U.S. Treasuries have been flirting with undesirable levels. On Monday, the yield on the 10-year note pierced 4.90% before drifting down to 4.87%. On Tuesday, the yield was unchanged.

"As long as we are below that [4.90%], the market is willing at least to trade sideways," said Alvarez, adding that emerging markets will see pressure on both a price and spread basis if yields climb towards 5%.

However that upswing in yields is data dependant. And until the release of Friday's job numbers, the market should be trading laterally, he added.

Moreover, investors will be unwilling to add risk, at least not until there is some sort of conclusion as to whether the yield on the 10-year note will top off at 5% or if higher yields lie ahead, Alvarez observed.

"As long as you see the top in the 5% range, I think dips will probably be purchased in the market - that means that people will take a little bit of additional positioning. They will nibble here and there," he added.

But if U.S. growth or estimations of growth in the second quarter were to signal that yields will move beyond 5%, investors may choose to abandon the asset class.

"I don't think we will see a lot of liquidation but I think people will sit back and wait," Alvarez noted.

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