Emerging market debt a tad lower as investors await Bernanke; KDB issues new bonds

By Reshmi Basu and Paul Deckelman

New York, March 27 - Emerging market debt was slightly lower on a dollar basis as investors remained grounded ahead of key testimony from Federal Reserve chief Ben Bernanke on Wednesday.

In the primary market, the Korea Development Bank sold a two-part offering of dollar-denominated and euro-denominated floating-rate notes (A3/A).

The issuer sold $600 million of three-year notes at par to yield three-month Libor plus 14 basis points. That priced at the tight end of initial guidance, which was set at 14 basis points to 16 basis points more than Libor.

The bank also sold a €300 million tranche of seven-year notes at par to yield three-month Euribpr plus 24 basis points. That tranche also came at the tight end of talk, which was set at 24 basis points to 27 basis points more than Euribor.

Proceeds from the sale will be used for general operations, including repayment of maturing debt and other obligations.

ABN Amro, JP Morgan, Merrill Lynch and UBS Investment Bank were joint lead managers for the Securities and Exchange Commission-registered deal.

Elsewhere, Eurasia Capital SA sold a $200 million offering of loan participation notes (Ba3) at par to yield 9½%.

Eurasia Capital is a Luxembourg-based special-purpose vehicle created to fund loans to Moscow-based Home Credit and Finance Bank Ltd, which is the Russian arm of consumer lending group Home Credit.

ABN Amro and BNP Paribas are lead managers for the Regulation S transaction.

From South Africa, glass maker Consol Glass priced a €420 million offering of seven-year secured notes at par to yield 7 5/8%.

Proceeds from the sale will be used to help fund its buyout by private equity group Brait SA.

Citigroup and JP Morgan led the sale of senior secured notes.

From the subcontinent, Bank of India sold an $85 million offering of perpetual bonds (Baa3) at par to yield a spread of mid-swaps plus 187 basis points.

Barclays Capital and Citigroup were bookrunners for the Regulation S transaction. The deal came off the bank's medium-term note program.

EM tad softer, investors await Bernanke

Back to the broader secondary market, emerging market debt prices edged lower as investors awaited Wednesday's key testimony from Fed chief Ben Bernanke before the Joint Economic Committee of Congress as well as Friday's release of key inflation data for further clarity into the inflation and growth story for the United States.

"Trading volumes remain light - very light," said a market source, adding that "everyone is pretty comfortable sitting on cash until there is more guidance."

Of late, investors have had to contend with a conflicting string of economic data, particularly pertaining to the troubled U.S. housing market. Market participants will be looking for Bernanke to deliver a clearer picture on the growth and inflation story as well as insight as to how the Fed is weighing the woes of the U.S. subprime mortgage sector.

"And until there is a clear picture, the market is going to trade sideways," the source added.

"Some days will see a rally. Some days will be a sell off, depending on how good or bad the data is. Most days will probably be described as lackluster. "

Furthermore, risk aversion is cranking higher as tensions escalate in the Middle East, noted an analyst.

Meanwhile during the Asian trading session Tuesday, Asian credits were a tad wider on a spread basis despite a firmer performance by regional equity markets. Cautious sentiment from the previous U.S. trading session weighed on the overall Asian debt market, remarked a second analyst.

Another source noted that Asian high yield names saw strong demand from retail buyers.

Heading back to the New York session, emerging markets continued to see muted trading volumes amid cautious trade. For the session, spreads narrowed by 1 basis point versus U.S. Treasuries while dollar prices declined.

At the close of the session, the bellwether Brazilian bond due 2030 had given up 0.10 to 134.70. The Colombian bond due 2033 had lost 0.20 to 146.00. The Turkish bond due 2030 had lost 0.31 to 153.81.

But Ecuador outperformed the broader benchmark for the second straight session. Its bond due 2030 added 0.50 to 89.00.

On Tuesday, the troubled Andean nation posted gains on a commendation by Merrill Lynch to increase exposure as the firm said it believes that a debt default is becoming more unlikely.

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