Spreads tighten on slightly better U.S. data; KDB prints notes; Pemex up; calendar builds

By Christine Van Dusen

Atlanta, Sept. 1 - Mixed economic data from the United States on Wednesday led to a slight increase in activity for emerging market debt, which saw spreads tighten, but investors and issuers mostly remained mired in the leftover low-volume, low-energy summertime malaise.

Yields on 10-year Treasuries climbed about 11 bps by mid-morning on the news that the U.S. manufacturing sector grew in August. But that positive headline was tempered by the fact that U.S. private-sector employment dropped during the month.

"Obviously non-farm payrolls are a big issue," an emerging markets strategist said. "The (manufacturing) numbers were a nice little surprise for the market, a positive surprise. But the (payrolls) number isn't overly encouraging, so we might see the market give up the gains it made today.

"After all, investors are pretty much out of the market, so it doesn't take a lot of trading activity to push the market higher. And that's just on thin volumes, which is never a good technical indicator."

Overall, "things are pretty quiet," he said. "Spreads are compressing because Treasuries are trading off, but otherwise screens are quiet."

KDB prints notes

The primary market on Wednesday saw state-owned lender Korea Development Bank price $900 million 3¼% notes due March 9, 2016 at 99.98 to yield 3.254%, or Treasuries plus 185 basis points, an informed market source said.

Barclays Capital, Citigroup, Credit Agricole CIB, Deutsche Bank, JPMorgan and KDB Asia Ltd. were the bookrunners for the Securities and Exchange Commission-registered deal.

Proceeds will be used for general operations, including extending foreign currency loans and repayment of maturing debt and other obligations, according to a 424B5 filing with the SEC.

This followed the company's late-August pricing of CHF 200 million 1¾% notes due 2014 at 100.232 to yield 1.69% and the February pricing of an upsized $750 million 4 3/8% 5.5-year notes to yield 4.432%.

Pemex bounces back

Volumes on Wednesday were "very light," the market source said. "Screens are pretty dark. Even with very active issues like the Brazil 40s there are no prices on the screens."

Generally the sovereign side is "seeing a bit of follow-through on the back of the strong equity markets," a Connecticut-based trader said. "But generally the market is horribly slow. Spreads have widened the last couple of days and now are tightening, with Treasuries off about 2.5%."

Prices on both sovereigns and corporates "are actually holding or a bit higher," he said. "They're tracking closer to the equity markets. So we're seeing some nice tightening this afternoon."

The $1 billion reopening of Petroleos Mexicanos SAB de CV's 6 5/8% notes due 2035, which recently priced at 108.339 to yield 5.975%, saw a "nice bounce-back" on Wednesday, the trader said.

"They traded down about 2 points over the early part of the week but now have bounced back higher, almost back to where they were," he said. "They're a point and a half higher today, so there's some nice tightening there on the long Pemex paper, which had struggled to find buyers earlier in the week."

Argentina inches up

Meanwhile, Argentina remained in focus on Wednesday after underperforming on Monday - due to an ongoing clash with media giant Clarin Group - and bouncing back somewhat on Tuesday. "There's been a large buyer of the GDP warrants denominated in dollars there," the trader said. "They're up about 10% from lows on Monday. So that's very nice and strong."

But the rest of the sovereign's bonds "are generally up only modestly," he said.

He pointed to the Boden 2015s, which were up only "about ¾ of a point, in sympathy with the rest of the bonds," he said.

"Because of the late August doldrums there were no peripheral buyers of Argentina for most of last week and early this week," he said. "Now we're starting to see a bit of money put to work. Argentina doesn't take much buying to push the curve back up higher. We are starting to see a little bit of money deployed here."

This could continue after the Labor Day holiday, he said, but "I think we'll have to watch it very closely. It could definitely be temporary. We'll have to see if we continue to get inflows into these sovereign markets in Latin America, because that will be a key driver."

But at this point, "it looks like there will be some money," he said. "It's just a matter of how much."

LatAm issuers plan deals

Brazil also was on the market's mind on Wednesday, with Rio de Janeiro-based telecommunications company Telemar Norte Leste SA mandating Bank of America Merrill Lynch, BNP Paribas, BTG Pactual and Itax for a roadshow starting Sept. 6, a market source said.

The roadshow will begin in London and then travel to New York, Boston and the West Coast before wrapping up on Sept. 8.

Market sources also were whispering about a possible offering of 10-year notes from Brazilian pulp maker Suzano Papel e Celulose SA and a bond issue from Brazilian development bank BNDES. Also possibly rejoining the pipeline is El Salvador-based business conglomerate Odebrecht Finance Ltd., which for months has been considering a dollar-denominated offering of perpetual step-up notes via Credit Suisse and Banco Itau.

Also from Latin America, Lima, Peru-based lender Banco de Credito del Peru will soon embark on a roadshow for a proposed issue of dollar-denominated benchmark-sized notes due 2020, a market source said.

Bank of America Merrill Lynch and Deutsche Bank are the bookrunners for the Rule 144A and Regulation S offering.

The roadshow will take place in London, New York, Los Angeles and Boston before wrapping up on Sept. 8. Meetings also will be held in Bogota, Colombia; Lima, Peru; and Medellin, Colombia.

SingTel, Adaro tap bookrunners

In other news, Singapore Telecommunication Ltd.'s wholly owned subsidiary, broadband service provider SingTel Optus Pty Ltd., mandated BNP Paribas, Citigroup, HSBC and JPMorgan to arrange a series of investor meetings from Sept. 3 to Sept. 7, a market source said.

The roadshow will start in London and then travel to Germany before finishing up in Paris.

Indonesia-based integrated coal mining company PT Adaro Energy mandated Credit Suisse for a non-deal roadshow beginning Sept. 9, a market source said. No other details were available on Wednesday.

And Philippines-based development finance institution Asian Development Bank is planning a four-tranche issue of Australian dollar- and Turkish lira-denominated bonds due between 2014 and 2017, according to a company announcement.

The bookrunner for the Clean Energy Bond, which is targeted at Japanese retail investors, is HSBC Securities.

Proceeds will be used to support clean energy projects in Asia and the Pacific.

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