Mixed day on better U.S payroll data; deal flow slows; Yuksel Insaat prices; inflows dip

By Christine Van Dusen

Atlanta, Nov. 5 - Though the economic data from the United States on Friday showed that non-farm payrolls grew by a better-than-expected 151,000 in October, emerging market investors and issuers mostly yawned, fatigued by the previous day's burst of activity.

In the hours prior to the Labor Department's announcement, there was a "strong open," but it soon gave way to "pretty extreme weakness" afterward, a London-based trader said.

"It's been a long week," he said. "We seem to be running on 10% of our gas. There's no real clear direction in terms of the bigger picture."

Calling it a "weird day," a New York-based market source was perplexed that the market didn't react more strongly to the "very, very strong numbers."

But "risk assets in general have had such a massive run, it's kind of insanity," he said. "I think the velocity of the up moves need to be tempered for a little while before we take another leg up. We're kind of ahead of the fundamentals and got ahead of ourselves a little bit."

Meanwhile, the pace in the primary market slowed on Friday with few new deals, including notes from Turkey's Yuksel Insaat AS.

"We've had a spate of new issues in the last few weeks," the trader said. "There's nothing we're waiting for right now, but there's no doubt there will continue to be a whole raft of new issues mandated in the next two or three weeks."

Inflows lose momentum

The payrolls data, when coupled with the Federal Reserve's latest quantitative easing plan, should provide support to risky assets, according to a Barclays Capital report.

So while the "buoyant" Asian markets on Friday may have given way to some selling in Europe ahead of the U.S. data and the day ended mixed to down, "external debt markets are still in an optimistic mood," according to an RBC Capital Markets report.

This followed a less optimistic final week in October, during which emerging markets bond funds saw net flows fall to their lowest level in eight weeks on the news of capital controls in several EM countries and "warnings of a bubble in this asset class growing more strident," according to a report from data tracker EPFR Global.

Though the week was the 23rd in a row for inflows, the flows lost "momentum going into November as investors waited to see how the U.S. mid-term elections would play out and just how far the U.S. Federal Reserve is willing to go to keep the world's largest economy from stalling," the EPFR report said.

Yuksel Insaat sells notes

The new $200 million 9½% notes due Nov. 10, 2015 from Turkey-based construction company Yuksel Insaat priced at 98.069 to yield 10%, a market source said.

BNP Paribas and Standard Chartered were the bookrunners for the Regulation S-only notes, which were talked to yield in the 10% area and are non-callable for three years.

This followed the late-Thursday pricing of Beijing-based property developer subsidiary China Overseas Land & Investment Ltd.'s $1 billion 5½% senior notes due Nov. 10, 2020, which came to market at par to yield Treasuries plus 301 basis points, a market source said.

BNP Paribas, BOC International, Deutsche Bank, HSBC and JPMorgan were the bookrunners for the Regulation S-only deal.

Proceeds will be used to fund new and existing projects and to refinance borrowings.

Mixed performance

The day's strong open, then sell-off, focused in particular on higher-beta names like Venezuela and Argentina, which were "up and then down," the New York-based source said. "There was a lot of profit taking after the massive rally over the last week or so."

At the same time, BBB names like Peru, Brazil and Mexico were "trading heavy," he said. "There are a lot of bonds for sale. Finally people are selling the long end of EM, following the Treasury market."

Overall, trading was a "little heavier" by day's end, he said, and recent issues were doing "pretty well."

He pointed to the $2 billion two-tranche notes due 2020 and 2040 from Hong Kong-based business conglomerate subsidiary Sinochem Overseas Capital Co. Ltd., which came to market Thursday via Citigroup, HSBC and UBS in a Rule 144A and Regulation S transaction.

The deal included $1.5 billion 4½% notes due Nov. 12, 2020, which priced at 99.467 to yield 4.567%, or Treasuries plus 208 bps, and $500 million 6.3% notes due Nov. 12, 2040, which priced at 99.519 to yield 6.336%, or Treasuries plus 228 bps.

"That's doing pretty good," he said. "It's tightened 2 or 3 bps."

The $200 million tap of Russia-based Lukoil International Finance BV's 6 1/8% notes due Nov. 9, 2020 - which came to market Thursday at 102.44 to yield 5.8%, or Treasuries plus 332 bps - was doing "OK" on Friday, the London trader said.

"It's probably trading at 102 3/8, which is about where it came," he said.

Lately EM assets have been on "a hell of a run," the New York source said. "Now we need to consolidate."

Looking to the week ahead, "it's a case of whether we carry on strong," the trader said. "The week before was a generally weak week. This week's been a strong week, but people are digesting this data and the state of the world. This weekend they'll put it all together and then we'll see if we're back on message or off message."

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