Emerging market debt resilient despite Treasuries; Argentina sells $500 million of Bonars V

By Reshmi Basu and Paul A. Harris

New York, May 3 - Emerging market debt prices slipped Wednesday as yields on U.S. Treasuries spiked higher. Meanwhile the market remains focused on U.S. economic data for clues into Fed action.

In the primary market, the Republic of Argentina sold $500 million of Bonar V bonds due 2011 at a yield of 8.09% Wednesday.

JSCB Bank of Moscow issued guidance on its benchmark-sized dollar-denominated offering of seven-year senior loan participation notes of mid-swaps plus 170 to 175 basis points on Wednesday.

The offering is expected to price on Thursday.

Barclays Capital and JP Morgan are joint bookrunners for the Rule 144A/Regulation S offering.

Kazakhstan's JSC ATF Bank has revised guidance on its $250 million to $300 million offering of 10-year senior fixed-rate notes to the 9¼% area from the 9 1/8% area.

The offering is expected to price this week.

Deutsche Bank and ING are the underwriters for the Rule 144A/Regulation S offering.

U.S. Treasuries slip; EM tightens

U.S. Treasuries were doused Wednesday on the back of robust manufacturing data. Sources have said that this week's performance of emerging markets would be very data sensitive. And Wednesday's session proved that was so.

"Every second, EM has its eyes on Treasuries," said a market source.

"This week is about numbers," added the source, referring to this week's spate of U.S. economic data, which includes Friday's release of non-farm payroll numbers.

On Wednesday, the Institute for Supply Management said its headline non-manufacturing index jumped to 63% from 60.5% in March, which came as a surprise to the market.

And then the Commerce Department reported that new orders for factory goods rose 4.2% in March, which was a 10-month high.

As a result, Treasuries turned bearish on worries that the Fed will continue to raise interest rates to curb higher inflation.

During Wednesday's session, the yield on the 10-year Treasury note sprung to 5.14% from Tuesday's close of 5.10%.

EMBI+ tighter

Meanwhile emerging markets were down on a dollar basis but the spread on the JP Morgan EMBI+ Index narrowed by one basis point to 174 basis points versus Treasuries.

In late afternoon, the Brazilian bond due 2040 was quoted down 0.45 to 128.25 bid, 128.35 offered while its spread narrowed one basis point to 313 bid spread, 312 ask spread.

The Argentinean discount bond due 2033 was spotted down 0.55 to 99.10 bid, 99.25 offered while its spread widened one basis point to 302 bid spread, 301 ask spread.

And the Russian bond due 2030 was seen down 0.13 to 107.875 bid, 108.25 offered while its spread tightened two basis points to 104 bid spread, 99 ask spread.

Over the past several weeks, the theme for emerging markets has been that even when Treasuries sell off, emerging markets will grind tighter, observed a trader.

"The technical backdrop has been supportive," he remarked, adding that investor angst has not been too tempered by the prospect of higher global rates.

"Rates are going up. But flows are still strong."

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