Emerging market debt spreads narrow in light volumes; sovereign dollar prices down

By Reshmi Basu and Paul A. Harris

New York, Dec. 5 - Spreads on emerging market debt narrowed Monday amid thin trading volumes, as investors looked to lock in gains ahead of year-end. However, dollar prices were down for the session.

In the primary market, Turkey retapped its 4¾% 2012 bonds (B1/BB-/BB-) to add €350 million. Dresdner Kleinwort Wasserstein and JP Morgan were joint bookrunners for the issue.

Meanwhile three Asian corporates issued price guidance. Out of Thailand, paper and pulp producer Advance Agro PCL set initial price talk for a $250 million offering of seven-year bonds (B3) at mid-11%.

ABN Amro and Deutsche Bank are lead managers for the Rule 144A/Regulation S transaction.

Also True Corp. talked $225 million of seven-year notes in the area of 9% via JP Morgan.

Next Hong Kong-listed Galaxy Entertainment Finance Co. Ltd set talk on its $500 million two-part senior notes offering (B1/B+) via Merrill Lynch and Morgan Stanley.

A tranche of seven-year fixed-rate notes, with four years of call protection, is talked at the 10% area.

Meanwhile a tranche of five-year floating-rate notes, with three years of call protection, is talked at the Libor plus 500 basis points area.

Moving to Latin America, AES Dominicana Energia Finance SA plans to issue $160 million of 10-year notes (/B-/B-) Tuesday morning. ABN Amro is running the deal.

EM spreads tighten

During the session, the JP Morgan EMBI Global Diversified index was down by 0.25%, while its spread over Treasuries tightened by one basis point.

Nonetheless, Monday's trading session was described as "uninspiring," according to a market source, adding that many investors have checked out with less than a month to go in the year.

"Very quiet, very quiet Monday... probably tight on all the credits here on very low volume," remarked a trader.

However, the trader added that there were a few exceptions. Spread widening was seen in Colombia and Peru on U.S. Treasury weakness, he observed, adding that overall there was no major widening.

Peru's component of the EMBI Global index was wider by five basis points.

Another source noted that in general the longer end of the curve for some sovereigns was hit harder.

During the session, the Brazil bond due 2040 lost 0.10 to 124½ bid, 124.55 offered. The Colombia bond due 2011 slipped a quarter of a point to 111 7/8 bid, 112 7/8 offered while its bond due 2033 lost half a point to 128½ bid, 129½ offered.

The Mexico bond due 2009 fell 0.10 to 101.65 bid, 101.80 offered while its bond due 2033 lost 1.33 to 115.40 bid, 115.90 offered. The Philippine bond due 2015 shed 0.63 to 108.87 bid, 109.62 offered while the bond due 2030 lost 1.06 to 112.31 bid, 112.56 offered.

Venezuela tighter, prices down after elections

Elsewhere in Venezuela, supporters of president Chavez won a landslide victory in legislative elections Sunday, even surpassing the government's expectations. Spreads narrowed even as the dollar price pulled back, noted a source.

During the session, the Venezuela bond due 2027 moved down half a point to 115.85 bid, 116.10 offered.

Moving to Ecuador, the expected new issuance out of the country is having little impact on sovereign prices. The country is expected to issue as much as $750 million in new bonds.

The trader remarked that the credit did not see much trading activity. The Ecuador bond due 2012 was unchanged at 100.80 bid, 101¾ offered.

Moreover, political risk has not entered the equation, he commented.

With year-end approaching, it is difficult to put a finger on exactly what market sentiment is, observed the trader.

Emerging market will track Treasuries and may even grind tighter one or two basis points a day until the end of the year. There does not look to be a trigger to break the slow grinding of the market.

"Right now, I don't think any major movements are going to take place," noted the trader.

"People are...just locking in gains for the year. I don't expect much volatility until January."

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