Emerging markets debt gains more; Indonesia rises on upgrade, rest of high-yield Asia lifted

By Paul A. Harris

St. Louis, Sept. 16 - Emerging markets continued to rally on Wednesday, sources said.

The EMBI-plus index closed at 310 bps bid, 18 bps tighter on the day.

Meanwhile Asian high-yield performed well on the back of a ratings upgrade of the Indonesian sovereign from Moody's Investors Service.

Indonesia upgrade

Moody's upgraded Indonesia's foreign- and local-currency sovereign debt ratings to Ba2, stable outlook, from Ba3, according to a Wednesday news release.

Indonesia's bonds gained 3 points versus levels seen at the Asian close on Tuesday, according to a New York-based trader who focuses on Asian fixed income.

Indonesia's 11 5/8% bonds due 2019 closed the Wednesday New York session at 142 bid 143½ offered, versus 139 3/8 bid, 139 7/8 offered at the Tuesday Asian close.

"Some of that was taken up in Tuesday's rally," the trader said.

Indonesian credit default swaps were 15 bps tighter after the upgrade, the source added.

"Offer side liquidity, which was pretty thin anyway, is virtually nonexistent," the trader commented.

Indonesia: predictability and credibility

The upgrade of Indonesia was prompted by the economy's relatively strong resilience to the global recession as well as its healthy medium-term growth prospects," Aninda Mitra, a Moody's vice president and sovereign analyst for Indonesia commented in Wednesday ratings release.

Mitra cited "growing credibility and predictability of government policies" which are expected to ensure macro-economic stability, and added that recently concluded elections will return to power the pro-reform incumbent president, which should ensure policy continuity and possibly lead to a deepening of policy and structural reforms.

The ratings action also made note of Indonesia's relatively low budget deficits and strong economic growth which have cut general government debt and private external debt to lower than its peer medians.

Other Asian names rally

The rest of Asian high-yield continued to run Wednesday, partially on the back of Indonesia's positive ratings news, the trader said.

As an example, the Philippines's 8 3/8% bonds due 2030 gained 2 points between Tuesday's Asian close and Wednesday's New York close, the trader said.

At Wednesday's New York close the Philippine 2030 paper was at 133½ bid, 134½ offered, versus 131½ bid, 132 offered at Tuesday's Asian close.

Asian high-yield is running with the market, the trader said, noting that the present rally is being driven by strong market conditions, the expectation of new money coming into the asset class, and positive news from the ratings agencies.

Mexican corporates talked

Elsewhere Wednesday Axtel, SAB de CV set price talk for its dollar-denominated offering of senior unsecured notes (Ba2/BB-/BB) at 9% to 9¼%, according to a market source.

The roadshow was expected to wind up Wednesday on the U.S. West Coast.

Bank of America Merrill Lynch and Credit Suisse are joint bookrunners for the Rule 144A and Regulation S offering.

Proceeds will be used to repay debt and for general corporate purposes.

Meanwhile Corporacion GEO SAB de CV set price talk for its dollar-denominated offering of five-year senior notes (expected ratings Ba3/BB-/BB-) at the 9½% area, according to a market source.

Morgan Stanley and Banco Santander are leading the offering.

The roadshow is set to conclude on Thursday in Los Angeles.

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