Emerging market debt sees volatile session with Treasuries; KT sells upsized $400 million 10-year notes

By Reshmi Basu and Paul A. Harris

New York, July 11 - Emerging market debt saw a shaky session on U.S. Treasuries volatility during a mixed trading session Monday.

In the primary market, KT Corp. priced an upsized offering of $400 million in 10-year notes at 98.086 for a spread of Treasuries plus 98 basis points.

By early morning, the book was heard to be five-times oversubscribed with the deal being talked in the area of 98 basis points.

The size was increased from $300 million.

Goldman Sachs, JP Morgan, Merrill Lynch and UBS were the lead managers for the Rule 144A/Regulation S offering of senior notes.

Meanwhile Southern Peru Copper Corp. plans to start a roadshow Wednesday in New York for an offering of $600 million in bonds (expected Ba1/BB+/BB+).

The roadshow will then move to Boston on Thursday, the West Coast on Friday and wrap up in London during the following week.

Pricing is expected on either July 18 or July 19.

The deal will be comprised of 30-year bonds and possibly include a tranche of 10-year bonds.

Citigroup is the bookrunner for the Rule 144A/Regulation S (with registration rights) transaction.

And Export-Import Bank of China set initial price guidance for its dollar-denominated 10-year senior fixed-rate notes (A2/BBB+) at Treasuries plus 87 basis points area. The book is in excess of $1 billion already.

BNP Paribas, Citigroup, HSBC, and Merrill Lynch are joint lead managers and joint bookrunners. Bank of China International and Goldman Sachs are also acting as joint lead managers.

Mixed session

In a week laden with U.S. economic data, U.S. Treasury prices slipped Monday on comments made by a Federal Reserve official, who said it was too soon to see a halt in the current monetary tightening cycle.

It was "still too early to be foreseeing a pause," said Jeffrey Lacker, president of the Richmond Fed.

The yield on the 10-year note made a stab at 4.15% before closing at 4.09% at the end of the session.

"Treasuries have been moving. They were wider this morning and then they tightened," said a sellside source.

"Everything is adjusting to expectations of the numbers that they are announcing this week," he added.

This week will see the release of the U.S. trade balance on Wednesday and consumer price index and retail sales on Thursday.

Emerging markets have "been volatile with the Treasury market," said a trader. "We opened weak," he added.

"Brazil was still below Friday's close. Argentina was slightly higher. Colombia was slightly higher. It was mixed," he replied.

During the session, the Brazil C bond slipped 0.063 to 101.062 bid while the bond due 2040 added a quarter of a point to 118.30 bid. The Colombia bond due 2012 gained a half a point to 118.30 bid.

The sellside source noted that spreads on Brazil's debt were tighter on the short end but wider by no more than five basis points on the long end.

Argentina up

The trader added there was a lot of volume seen in Argentina, saying hedge funds and real money were "generally buying" its bonds.

"I think people liked the credit and want to be long because you had a little bit of a back off on Friday on the announcement of a second auction of Bodens.

"And this morning, people were reassessing. And everyone decided that they want to buy paper, realizing that the auction is going to go well again, so they start buying."

Argentina sold 1 billion pesos of Boden bonds maturing in 2014 to yield 5.51% on July 7.

Furthermore, the sellside source added: "Argentina had been benefiting from all the noise in Brazil.

"People are trying to move the money. Argentina offers a good chance. For instance CDS [credit debt swaps] have been tightening in Argentina.

"And compared to Brazil, they are only 20 basis points wider on the 10-year and the five-year."

But it was quiet for the other names.

"The market is pretty healthy," remarked the trader.

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