Emerging market debt rides higher on tame CPI numbers, housing starts; ICICI Bank sets talk

By Reshmi Basu and Paul A. Harris

New York, Aug. 16 - Emerging market debt continued to move higher Wednesday on the back of a series of U.S. economic data which reinforced hopes that the Federal Reserve is finished with further interest rate hikes.

On the primary front, the pipeline for new issuances has simmered down as many investors are on vacation. However, price talk emerged on one deal Wednesday. Out of India, ICICI Bank Ltd. talked its dollar-denominated offering of perpetual tier 1 bonds at Treasuries plus 250 to 270 basis points.

The size of the offering remains to be determined.

Merrill Lynch & Co., JP Morgan and Morgan Stanley are leading the Rule 144A/Regulation S offering.

The notes will come with 10 years of call protection. If the notes are not called in 10 years, the coupon will step up by 100 basis points.

In trading, emerging market debt rose Wednesday, as a string of economic reports made for a supportive environment, according to market sources.

On Wednesday, financial markets were pleased with U.S. data that showed tame consumer price index numbers and a slowdown in housing starts in the United States, which implied that the Federal Reserve can keep inflation in check by slowing growth.

The Labor Department said the core consumer price index jumped 0.2% last month, coming in short of market expectations of 0.3%.

In another report, the Commerce Department said that housing starts slipped 2.5% last July, nearing a four-year low.

On the combination of those numbers, financial markets jumped higher building on Tuesday's momentum, which saw U.S. Treasuries and equities rally on the muted U.S. producer price index data.

On Wednesday, the Dow Jones Industrial Average index gained 96.86 to close at 11,327.12 while the yield on the 10-year Treasury note fell to 4.87% from 4.93%.

Prices up, volumes light

Emerging market debt saw higher dollar prices across the board, noted a trader, who added that volumes remained light in keeping with the summer session.

Latin American was up on the day.

During the session, the bellwether Brazilian bond due 2040 was up 0.65 to 130.55 bid, 130.65 offered. The Colombian bond due 2033 gained 1 point to 135.50 bid, 136.50 offered. The Ecuadorian bond due 2030 added 0.50 to 103.40 bid, 104 offered. And the Venezuelan bond due 2027 gained 0.95 to 124.25 bid, 124.55 offered.

Positive sentiment also spread across the region's local markets, following the CPI numbers, according to a market source. In Mexico, the peso traded as high as USD/MXN 10.74 before closing the session nearly unchanged at 10.77 from the previous session.

Argentina saw its currency trade as up to USD/ARS 3.075, tracking the momentum seen in fixed-income markets.

Elsewhere, the Philippines bond due 2025 was higher by 0.75 to 129.75 bid, 129.87 offered. Finally the Turkish bond due 2030 surged 2 points to 150 bid, 150.50 offered.

The market has become quite expensive, noted the trader, who said he expected the tone to remain positive up until the Federal Open Market Committee meeting in September.

"Nothing is really cheap," he said. "Spreads are just really tight again."

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