Risk aversion eyed on China, global concerns; spreads widen; Sberbank offering returns

By Christine Van Dusen

Atlanta, June 29 - Continued concern about the global debt crisis and the U.S. economy led to weaker equity markets and wider spreads on Tuesday, though volumes did increase somewhat and several emerging market issuers took baby steps toward bringing new deals to market.

On Tuesday the U.S. Conference Board revised downward its April economic figures for China while also saying that U.S. consumer confidence had dropped more than expected. Given that China had previously appeared to be a beacon of relative strength in an otherwise dismal global economy, the news amplified investor anxiety.

Also part of the picture was the fact that Romania's economy could decline more than expected in 2010. The news sent the sovereign's currency down against the euro.

"There was just a global flight to safety off the China news this morning. And then there was Romania," an economic strategist said. "So there's just still this global flight away from anything risky right now, and EM is obviously taking the brunt of that."

Indeed, the iShares MSCI Emerging Markets index was down more than 4% on the day, a source said. And yields on 10-year Treasuries fell, at one point dropping to a low not seen since April 2009.

Equities weaker, spreads widen

"Weaker equity markets on global growth concerns and continuing worries about E.U. region debt have pushed spreads out," a New York-based trader said in the morning.

By afternoon, the market was "still seeing pressure in EM credit-land," he said. "Spreads continue to widen as 10-year Treasuries hit the 2.95% handle and should move lower still."

Five-year credit default swaps from Russia and Turkey - and for sovereign bonds in general - were wider by about 10 basis points on Tuesday morning, he said.

The Russian 2030 bonds were "112.625 to 112.875 from 113.125 yesterday," he said.

Sovereign bonds, in general, were "lower and wider on increased volumes" as risk aversion moved to the forefront, he said.

Sberbank returns

Meanwhile, two Russian issuers moved ahead with planned deals.

Moscow-based lender Sberbank could print a $1 billion five-year issue of notes via DZ Bank, JPMorgan and RBS by the end of the week, a market source said. The deal had been expected to come to market in May but was sidelined by unfavorable conditions.

And Moscow-based commercial lender TranscreditBank is on a roadshow for a possible issue of notes with JPMorgan and BNP Paribas, a London-based trader said.

Also on a marketing trip this week is Kuwait's Kuwait Projects Co. The Kuwait City-based investment firm is said to be on a non-deal roadshow, but one source believes the company is looking to do a Regulation S offering of notes.

That roadshow will travel through Hong Kong, Singapore, the United Arab Emirates, London, Germany and Switzerland before wrapping up on July 6.

And Russian financial services company Promsvyazbank has finished a roadshow in Europe with Citigroup and RBS for a possible issue of notes, according to a market source. The eurobond deal could total $100 million.

But given Tuesday's volatility, the bankers involved in these deals - and others on the horizon - are likely reconsidering whether this is the right time to look at bringing a new issue to market, the New York-based trader said.

LatAm softer

Corporates in Latin America opened softer on Tuesday, the New York-based trader said. "Bids have clearly backed up, although Street flows are fairly light," he said.

As of Tuesday morning the $250 million 9¼% 10-year notes that priced last week from Mexico's Corporacion GEO SAB de CV at 98.409 to yield 9½%, or Treasuries plus 641.8 bps, were at 100 3/8 to 100¾ after closing at 100¾ to 101 on Monday night, he said.

By Tuesday afternoon, GEO dropped down to 99.75.

And the $800 million 4 7/8% notes due 2020 from Mexico's Grupo Bimbo SAB de CV, which priced last week at 99.726 to yield 4.91%, or Treasuries plus 180 bps, were also wider, at 181, he said.

Overall, "liquidity is at a premium" as investors "wait for clarity," the New York trader said. "We have not seen real money."

Southern Copper, Mumtalakat active

Also on Tuesday, Southern Copper Corp.'s $1.1 billion 6¾% 30-year bonds, which priced in April, were "40 down, at 284," the New York trader said.

And last week's issue from Bahrain Mumtalakat Holding Co. - $750 million 5% notes due 2015 that priced at 99.077 to yield 5.212%, or mid-swaps plus 300 bps - was "wider in spread but unchanged versus reoffer," a London based source said.

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