Emerging market debt listless amid thin trading volumes; two Russian corporates tap market

By Reshmi Basu and Paul Deckelman

New York, March 26 - Emerging market debt traded cautiously Monday on the back of a mixed U.S. stock performance. However, the asset class was able to find some support from firmer oil prices.

In the primary market, Moscow-based Absolut Bank sold a $175 million offering of three-year eurobonds at par to yield 9 1/8% or a spread of 465 basis points more than Treasuries.

Dresdner Kleinwort and UBS Investment Bank managed the Regulation S transaction.

Also coming from Russia, Gazprombank (Baa2/BBB-) sold a $700 million offering of three-year floating-rate notes (Baa2/BBB-) at par to yield three-month Libor plus 90 basis points.

Dresdner Kleinwort and UBS were lead managers for the Regulation S transaction.

Gazprombank is a joint-stock bank of the gas industry and a subsidiary of Russian energy giant Gazprom.

EM holds despite mixed U.S. stocks

Returning to the secondary market, emerging market debt traded in tight ranges Monday as investors remained skittish ahead of Friday's release of the personal consumption expenditure index in the United States.

Nonetheless, one market source noted that the asset class fared relatively well, given the unenthusiastic performance by the U.S. stock market on the back of weaker than expected new home sales.

Sales of new homes in February slid to the lowest level in almost seven years.

Investors are looking for clues into the direction of monetary policy in the United States but Monday's data continued the trend of mixed economic data.

Last Wednesday, the market cheered in response to what appeared to be a more dovish statement by the Federal Reserve, which raised speculation that the central bank would cut benchmark lending rates sooner than later. But on Friday, the joy turned to concern on news that existing sales of U.S. homes unexpectedly jumped, which pushed investors to reassess Fed policy.

"And then Monday's release just added more confusion to an already troubled housing picture," noted an investor.

Asia sees muted session

During the Asian trading session Monday, liquidity was very light with street buying dominating the muted trading session, according to a market source.

In corporate news, the announcement by Hong Kong-based property developer Lai Fung Holding that it would issue up to $200 million in senior notes via Deutsche Bank and HSBC had little impact on Chinese property credits.

Meanwhile India's Reliance Industries Ltd. saw its five-year credit derivative swap come in by 5 basis points on news that it would not after all set up a $20 billion joint venture with Dow Chemicals.

On March 16, the news of a possible joint venture triggered a 9 bps widening on the five-year credit derivative swaps. The issue has been under pressure ever since.

During the New York session Monday, liquidity remained "unbelievably light" as high beta credits "Argentina and Turkey turned in the worst performance", according to a market source.

However, Ecuador posted gains on a recommendation by Merrill Lynch to increase exposure as the firm said it believes that a debt default is becoming more unlikely, according to a source.

Ecuador was the session's out-performer as its spreads tightened by 8 bps.

Spreads for Venezuela widened as state-owned oil company Petroleos de Venezuela priced a $5 billion combined bond offer at 105.5.

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