Emerging market debt higher on post-election rally; Pakistan up on possible upgrade

By Reshmi Basu and Paul A. Harris

New York, Nov. 8 - Emerging market debt was firmer Thursday, tracking a post-election rally in U.S. core financial markets.

Wednesday's session saw the asset class impacted by the U.S. election story, noted market sources. U.S. stocks and Treasuries were bolstered by the increased likelihood that the Democrats would take control of congress.

By the afternoon, U.S. financial markets were also bumped up higher by the resignation of U.S. defense secretary Donald Rumsfeld, which investors saw as a sign of a possible shift in U.S. policy in Iraq, according to a market source.

Overall, emerging markets saw a supportive session, noted a trader.

"But with spreads so tight, there's not room for the market to move," he added.

Despite the firm tone, emerging markets struggled to match the gain in Treasuries.

The JP Morgan EMBI+ index was unmoved at 187 basis points versus U.S. Treasuries.

However, while the JP Morgan EMBI Global index was up by 0.13%, by that measure the asset class trailed the U.S. Treasury rally as its spread widened by two basis points.

In trading, the bellwether Brazilian bond due 2040 added 0.25 to 132 bid, 132.10 offered. The Mexico bond due 2026 gained 0.25 to 165.50 bid, 161.50 offered. The Venezuelan bond due 2027 increased by 0.20 to 120 bid, 120.20 offered.

Pakistan up on possible upgrade

In other news, Pakistan saw its sovereign bonds boosted by the announcement that Moody's Investors Service may raise the country's ratings.

The agency said it placed Pakistan's B2 foreign- and local-currency government bond ratings on review, citing the ongoing decline in the country's public and external debt ratios.

The agency added that "it maintains some reservations concerning persistent inflationary pressures, the deteriorating current account balance and a relaxation of fiscal policy."

During the session, the Pakistan bond due 2009 moved up by 0.50 to 101 bid, 102 offered whole the bond due 2016 rose 0.50 to 102 bid, 103 offered.

Turkey weak on E.U. deadline

Elsewhere, Turkish bonds came under pressure after the European Commission set a December deadline for the country to open its ports to Cyprus. If Turkey fails to comply, the commission warned that the country's efforts to join the European Union would be jeopardized.

In trading, the Turkish bond due 2030 slipped 0.25 to 151.125 bid, 151.625 offered.

Ecuador up with oil

Ecuador saw its bonds rise on higher oil prices, according to a second trader.

At session's end, the credit saw its returns rise by 0.51% on the JP Morgan Global index.

However, investors raised their eyebrows at news that presidential front runner Alvaro Noboa plans to renegotiate the country's the coupons and tenors on the country's bonds due 2012 and 2030.

Agrokor sets talk

In the primary market, Croatian food maker Agrokor DD set initial price guidance for a €150 million offering of five-year eurobonds (B2/B) at the 7¼% area.

The issue will be non-callable for two years.

ABN Amro is the bookrunner for the Regulation S transaction. UniCredit Group is co-manager.

Also, Russia's Bank St. Petersburg set price guidance for a $100 million to $150 million offering of three-year notes (B1/B) at 9½% to 9¾% via Dresdner Kleinwort and ABN Amro.

Adding to the pipeline, Chinese real estate developer Shimao Property Holdings Ltd. will begin a roadshow on Thursday in Singapore for its $500 million offering of senior notes (Baa3/BB+).

The company is offering five-year fixed- or floating-rate notes and 10-year fixed rate notes that will come with five years of call protection. Tranche sizes remain to be determined.

The roadshow continues in Hong Kong on Friday, then moves to London on Tuesday. The U.S. roadshow will take place Nov. 15-20.

Morgan Stanley and Goldman Sachs & Co. are leading the deal.

Proceeds will be used to finance the development of new projects including the acquisition of a new land bank. Proceeds will also be used to repay certain existing loans and finance existing projects.

And on Friday, Ukraine will hit the road to market a benchmark-sized dollar-denominated offering of 10-year bonds via Citigroup, Deutsche Bank and UBS.

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