Emerging market debt flat in thin volume; Colombia issues $1 billion in new global bond

By Reshmi Basu and Paul A. Harris

New York, July 21 - Emerging market debt showed resilience Friday during an uneventful trading performance, as U.S. stocks and Treasuries ended the session lower.

On the primary news front, the Republic of Colombia (Ba2/BB/BB) sold a $1 billion offering of 7 3/8% bonds due January 2017 at 99.482 to yield Treasuries plus 240 basis points via JP Morgan and UBS.

The drive-by deal priced in line with price guidance, which was set in the area of 240 basis points over Treasuries early Friday morning.

The government had wanted to tap the capital market weeks ago, according to a market source. But the finance ministry did not believe that price levels at that time reflected the country's creditworthiness as escalating tension in the Middle East and concerns over the Federal Reserve's monetary policy eroded investors' appetite for risk.

Colombia has underperformed the Latin American region during the recent bout of market turbulence. And some sources expressed their surprise that country issued now.

However, the asset class, as well as the region, has seen stability on the back of dovish comments made by Fed chief Ben Bernanke on Wednesday and Thursday. He signaled that the central bank was near the end of its current monetary tightening cycle. That assurance has helped spreads tighten over the past few sessions and Colombia chose to capitalize on better conditions on the heels of the Fed chief's upbeat comments, observed market sources.

One market source described the pricing as reasonable while others disagreed.

"It may be a little rich if you look out all the way up to the 2024 maturity," noted Enrique Alvarez, Latin America debt strategist for think tank IDEAglobal.

But, he added: "I think they had to give up a little bit to get it done."

EM holds on

Emerging market debt closed out the week on an "okay" note Friday, a trader said, as the asset class rode out a troubling session for both U.S. stocks and Treasuries.

"I don't think the market did a whole lot today [Friday]," remarked Alvarez.

"We had some advances," he said, adding that Friday's session revealed very little about market direction.

"People who had already positioned over the course of the last two days don't want to stretch things, especially over a weekend where you have so many unknowns on the geopolitical front," he noted.

The market was unable to capitalize on the positive sentiment built up in previous sessions as lower U.S. core markets put a cap on momentum. Emerging market debt was for the most part flat, observed a trader.

During the session, the bellwether Brazilian bond due 2040 lost 0.25 to 127 bid, 127.10 offered. The Russian bond due 2030 added 0.19 to 108 bid, 108.375 offered. And the Turkish bond due 2030 gave up 0.25 to 140.875 bid, 141.375 offered,

Nonetheless, Alvarez observed that the asset class is now less defensive than before Bernanke's testimony.

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