Emerging market debt firmer with U.S. Treasuries; Temirbank sells upsized $150 million bonds

By Reshmi Basu and Paul A. Harris

New York, March 14 - Emerging market debt traded with a better tone Tuesday on the back of stronger core markets, as the asset class saw higher dollar prices but underperformed even bigger gains in U.S. Treasuries.

In the primary market, Kazakhstan's Temirbank JSC (B1//B-) sold an upsized offering of $150 million three-year senior bonds at 99.68 to yield 9 3/8%.

The deal, increased from $100 million, came at the wider end of price guidance for a yield in the 9¼% area.

Dresdner Kleinwort Wasserstein was the bookrunner for the Regulation S transaction.

EM higher on Treasuries rally

External markets were pushed higher Tuesday as U.S. Treasuries rallied on news that retail sales suffered an unexpected plunge in February.

Treasury yields fell on speculation that the Fed will be less inclined to continue with its current monetary tightening campaign.

The yield on the 10-year Treasury note stood at 4.69% , down from Monday's close of 4.77%, the sharpest one-day decline in six months.

As a result, U.S. equities moved higher. The Dow Jones Industrial Average shot up 75.32 to 11,151.34, the highest level since June 2001.

A stronger performance in core markets gave support to emerging markets, according to market sources.

The JP Morgan EMBI Global Diversified index gained 0.25% while its spread over Treasuries widened by four basis points.

"I guess the Treasury market in the U.S. being a little bit better behaved, [with] the equity markets probably stronger globally...our prices are generally up on the day," noted a trader, who added that trading volumes were decent.

Players in Tuesday's action included the normal cast of characters such as asset managers, dealers, hedge funds, and local markets, he added.

Brazil lifted by opposition nominee

Brazilian bonds were also supported by news that Brazil's main opposition party, the Brazilian Social Democracy Party (PSDB) picked Sao Paolo governor Geraldo Alckmin as its presidential nominee over Sao Paulo mayor Jose Serra.

One source noted that Alckmin's chances of running against president Luiz Inacio Lula da Silva in the second round will be slightly hampered by populist candidate Anthony Garotinho of the Brazilian Democratic Movement Party (PMDB). Nonetheless, bond professionals see Alckmin as market friendly.

During the session, the Brazilian bond due 2040 added 0.50 to 130.75 bid, 130.85 offered.

Elsewhere at session's end, the Argentinean discount bond due 2033 was higher by 0.33 on the day at 98.65 bid, 98.75 offered. Ecuador continued to gain despite oil protests. Its bond due 2030 gained 0.50 during trading Tuesday to 98 bid, 98.50 offered. And the Venezuelan bond due 2027 was at 126.60 bid, 127.05 offered, up 0.70.

The underperformer of the session was Peru, as its performance was undermined by election uncertainty. The nation's bond due 2033 lost 0.50 to 115 bid, 115.50 offered.

Correction may have more to run

Nonetheless, the strength in emerging markets on Tuesday does not necessarily mean that the market's recent correction is over, noted the trader. The correction may still have legs.

"I guess the market is going to move around a little bit with some of the other external markets and with what they do on a daily basis," noted the trader.

"It still seems to back and forth. In terms of a correction being over, I guess if that makes you feel better, then maybe the correction is over.

"But the way this has been going, one day it's like that. The next day it's not," he noted, added that the sideways trading has being going on for a week or so.

Turkey names acting central bank head

In other news, the Central Bank of the Republic of Turkey named Erdem Basci as acting central bank governor to replace Sureyya Serdengecti. Basci will likely be the permanent candidate, noted a market source, adding the market will be happy with the decision.

During the session, the Turkish bond due 2030 moved up 0.25 to 156 bid, 156.25 offered.

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