Emerging markets creep higher; Hungary, KMG price benchmarks; primary drowns out trading

By Aaron Hochman-Zimmerman

New York, July 17 - Emerging markets was nothing but "new deals, new deals, new deals," a trader said on Friday.

"We did a lot of business," he said.

But in the secondary, trading volumes were light and for price levels the new supply "didn't make a difference," he said.

Risk appetite felt strong in the market and prices held their ground.

Hungary began the day by pricing a €1 billion five-year bond.

Terms were also made available by Kazakhstan's KazMunaiGaz Finance Sub BV, which finished its $1.25 billion deal Thursday evening.

In the light trading, there were bright spots for many of the bigger sovereign names towards the long end of the curve in Latin America.

Colombia's bonds due 2024 added 2 points.

From the major markets, equities ended flat on Friday, although volatility shed 1.08 to end the week at 24.34, according to the VIX index. The index is an often used gauge of market volatility.

As a sector, emerging markets continued to tighten, narrowing 9 basis points to a spread of 405 bps, according to JPMorgan's EMBI+ index. The EMBI+ estimates the amount of extra yield investors will demand to hold assets in emerging market debt.

Hungary, KMG price

Hungary priced a €1 billion five-year bond (Baa1/BBB-/BBB) at mid-swaps plus 395 bps.

The bonds priced at the tight end of talk of mid-swaps plus 400 bps. They came with a coupon of 6¾% at a price of 99.835 to yield 6.79%.

Citigroup and ING acted as bookrunners for the deal.

The bonds will mature on July 28, 2014.

Proceeds will be used for general financing purposes.

The bonds are the first international issue since Hungary received a $25 billion rescue package from the International Monetary Fund and others.

After pricing, the bonds traded tighter 20 bps as Europeans bought in early, but U.S. investors "took it down," a trader said.

Opinions were mixed over whether the successful sale signaled an end of the troubles in Hungary.

The country has suffered through failed local-currency debt auctions, but "they'll do fine," one trader said.

"I don't think it's a cure-all, is it?" another trader asked.

In trading, "it had done OK," he said, but "it hasn't set the world on fire."

On a dollar basis, the new 6¾% Hungarian bonds due 2014 were seen up 7/8 point at 100¾ bid, 101 offered.

Also in emerging Europe, KazMunaiGaz Finance Sub BV priced $1.25 billion five-year six-month senior unsecured global notes (Baa2 / BB+ / BBB-) with an 11¾% coupon at 99.014 to yield 12% late Thursday.

The bonds due Jan. 23, 2015 matched talk of a 12% yield.

Citigroup and JPMorgan acted as bookrunners for the deal.

KazMunaiGaz is an Astana, Kazakhstan-based government run energy firm.

Before August

A strategist suggested on Thursday that the likelihood of pricing a deal in August is slim enough to force about every issuer to wait until September if time runs out in July.

As the perceived deadline drew closer, Abu Dhabi's Dolphin Energy Ltd. added itself to the queue by mandating BNP Paribas and RBS for a bond issue (Aa2/AA/AA).

Initial price guidance is expected during the coming week.

Dolphin Energy is an energy firm 51% owned by Mubadala Development Co. which is owned by the Emirate of Abu Dhabi.

Mubadala itself priced $1.75 billion five- and 10-year bonds on April 29.

The $1.25 billion of five-year bonds priced at a spread of Treasuries plus 395 bps. The 5¾% notes came to market at 99.019 to yield 5.98%.

The $500 million 10-year bonds priced at a spread of Treasuries plus 462.5 bps. This tranche came with a coupon of 7 5/8% at 99.278 to yield 7.73%.

Also in primary news Friday, Brazil's Centrais Eletricas Brasileiras SA announced that it will roadshow dollar-denominated benchmark-size 10-year senior unsecured fixed-rate bullet notes (/BBB-/BBB-).

The roadshow will be held on July 21 in London and on the U.S. west coast as well as New York and Boston on July 22.

Credit Suisse will act as bookrunner for the deal.

Proceeds will be used for general corporate purposes.

Eletrobras is a Rio de Janeiro-based, government-owned power firm.

Among the sovereigns, Sri Lanka opened a roadshow on the U.S. west coast which will continue on July 20 in New York and July 21 in Boston.

It remained unclear what sort of transaction would come from the meetings, but given the island's violent history, "we would not be very interested in that," a buysider said earlier in the week.

Emerging Europe survives supply

Emerging Europe, along with the other sectors, traded modestly while handling new deals was "all we've been doing," a trader said.

Still, Qatar's RasGas performed well after pricing on Thursday, but it was "smacked down" by the United States in early trading Friday, a trader said.

The three new bonds were all better by over 1 point on Friday, but at least ¾ point below their respective highs.

The bonds were "choppy," the trader said, as they rattled up and down within a range of nearly 2 points.

"Most of my stuff traded within a ½ point," he said about bonds from central Europe, the Baltics and the Middle East.

RasGas' 4½% bonds due 2012 which priced at 99.964 were seen at 101 3/8 bid, 101 5/8 offered.

The 5½% bonds due 2014 which priced at 99.768 were seen at 101½ bid, 101 5/8 offered, while the 6¾% bonds due 2019 which priced at 99.969 were seen at 102 bid, 102½ offered.

Elsewhere on the corporate side, five-year CDS for Russia's OAO Gazprom were seen "a lot tighter" on what seemed to be a short squeeze, the trader said.

The contracts were tighter by 14 bps at 487 bps.

On the sovereign side of trading, the light volumes left the major credits mixed.

Russia's government bonds due 2030 gave up 0.45 point to 98 bid, 98¾ offered.

Turkey's sovereigns due 2030 continued to do well as they added 1 1/8 point to 155¼ bid, 154¾ offered.

LatAm's Friday push

Latin America continued to drag slowly through its trading day while new issues held investors' focus.

"We're still in the digestive phase of what we had for the week," said Enrique Alvarez, a Latin America debt strategist at think tank IDEAglobal.

Still, there was risk appetite enough for "a small Friday illiquid push," he said.

The "core credits are pushing a little higher," he said, particularly on the long end of the curve.

Bonds to watch were Brazil's 8¼% bonds due 2034, which added 1¼ point to 122 bid, 122¾ offered.

Also, Colombia 8 1/8% bonds due 2024 added 2 points to 109 bid, 109¼ offered, while Mexico's 8.3% bonds due 2031 improved by 1 point to 119 bid, 120 offered.

In the high-beta world, Argentina lagged slightly on Friday.

Despite some momentary gains on the week, the bonds have been range bound from 50 bid to 53½ bid, he said.

"It's back and forth."

On Friday, the 8.28% Argentine discount bonds due 2033 fell by ½ point to 52¾ bid, 53 7/8 offered.

LatAm leaves out sovereigns

The latest wave of new issuance has left out the sovereign space of Latin America, but "the risk tolerance is there," Alvarez said, although no specific issuers have shown themselves.

There has been a "thorough compression of spreads," there is a "better sentiment," he said; "people could come around and tap."

The question that remains is: "Who has not been out there?" he asked.

Panama had a "not very successful" reopening of its 7¼% senior fixed-rate bonds due 2015 on March 19.

Panama sold $323 million of bonds (Ba1/BB+/BB+) at 101 to yield 7.041%, or a spread of Treasuries plus 549 bps.

Another issue is not particularly expected, but "they are a candidate," he said.

Also, "I wouldn't be surprised to see Mexico," he said and "Brazil has said they'll do something," which may or may not include new bonds.

Asia holds on supply, Jakarta bombing

Asia has resolutely held its levels in the secondary as supply and political risk has stacked higher and higher.

Korea National Oil Corp. has announced a five year bond via Asian Development Bank, Bank of America Merrill Lynch, Barclays Capital, BNP Paribas, Deutsche Bank and Korea Development Bank.

However, the bonds expected in the third quarter are "still kind of in the marketing phase right now," a syndicate source said.

Meanwhile, Indonesia's plans to issue its first samurai bonds will go ahead despite suicide bombings in two Jakarta hotels which killed at least nine and injured dozens of others.

The attacks were the first major acts of terrorism in Indonesia since 2005, according to the BBC.

Financially, "I think the magnitude [of the bomb blasts] will not be significant. Moreover, Japan has always supported Indonesia's economy. I think the incidents will not affect it," finance minister Sri Mulyani Indrawati told reporters, according to the Jakarta Post.

The Indonesian dollar bonds due 2019 were only off by ¼ point after the bombing at 130¼ bid, 131 offered.

Elsewhere, former Pakistan prime minister Nawaz Sharif was acquitted on hijacking charges and will be allowed to run for office.

A ban on his public service stood since 1999 when he was overthrown by general Pervez Musharraf whose plane was the target of the alleged hijacking.

Sharif was considered a possible successor to Musharraf in 2007 after Musharraf stepped down from office; however, popular support favored former prime minister Benazir Bhutto.

After her assassination, Bhutto's husband Asif Ali Zardari carried her supporters and was elected.

Currently, Sharif is in a strong position to campaign for the presidency in 2013.

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