Morning Commentary: EM secondary softer, but some low-beta names outperforming as primary regroups

By Rebecca Melvin

New York, May 15 – Emerging markets debt remained under pressure on Tuesday as the U.S. dollar and Treasury yields spiked, but there were some pockets of stability and positive sentiment as market players worked around the margins amid persisting volatility, sources said.

“It’s not falling out of bed,” a New York-based sellside source said of EM.

Despite a jump in the U.S. dollar, which has been a central component of current woes, and higher yields, the Republic of South Africa was guiding talk on a dollar-denominated dual-tranche offering of notes early Tuesday.

The South Africa 12-year tranche was talked at a yield in the area of 6%, and the 30-year bond was talked to yield 6 3/8%.

Deutsche Bank/Nedbank, JPMorgan, Rand Merchant Bank and Standard Bank are joint bookrunners of the Securities and Exchange Commission-registered offering.

Market players were looking at positive aspects of the U.S. high-grade and European debt markets, where deals were printing with bigger than normal, but still manageable, concessions.

“Deals are breaking tighter, and the primary feels pretty good. There has been a backup in rates and emerging markets are seeing a softer secondary, but some low-beta names are outperforming high beta,” the New York-based source said.

In Latin America, Chile, Peru and Colombia were outperforming Brazil and Argentina, which has been cordoned off in some respects due to financial turmoil that sent the Argentine peso down again on Monday to a record low of 25 pesos to the dollar.

But Brazil’s Unigel Luxembourg SA was pushing ahead with a revised deal that it scuttled in March. Unigel was talking a $200 million offering of notes due 2024 (expected ratings: //B+) to yield in the area of 10% on Tuesday.

The new deal represents a revision of a proposed $400 million of seven-year notes, which were non-callable for three years. That note offering was cancelled after initial price talk was announced in the 8% area.

Morgan Stanley, UBS Investment Bank and Bradesco are joint bookrunners for the new version of the Rule 144A and Regulation S notes.

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