Emerging market funds see $297 million inflows on week; EMBI, high-grade spreads narrow

By Paul A. Harris

St. Louis, Feb. 18 - JPMorgan's Emerging Markets Bond Index, the EMBI Plus, closed tighter by 5 basis points at a spread of 291 bps on Thursday, according to a market source.

Meanwhile, emerging market bond funds saw continued inflows, with $297 million reported by EPFR Global during the most recent week.

High-grade sovereign credit-default swaps were also seen marginally tighter during the European afternoon, according to a market source there.

Brazil's five-year CDS were 136 bps mid, 1 bps tighter.

Mexico's five-year CDS were 134 bps mid, 2 bps tighter.

Cash bonds in the Latin America high-grade space have now tightened approximately to the levels where they were at the beginning of the month, before credit began sliding on expectations that the European Union would have to ride to the rescue of Greece, and perhaps other European sovereign states, a buyside source on the U.S. West Coast said Thursday.

Meanwhile Russia's five-year CDS were 191 bps mid, 3 bps tighter in the European afternoon.

High-yield sovereigns were mixed.

Venezuela's five-year CDS were 6 bps tighter, at 1,032 bps mid.

However Argentina gave up some ground on Thursday during the European session.

Argentina's five-year CDS were 1,096 bps mid, 3 bps wider.

Primary market quiet

The primary market remained quiet on Thursday.

Two deals are on the active forward calendar.

The Republic of the Philippines' Samurai deal, up to ¥100 billion of Samurai bonds, is believed to be next week's business, a market source said on Thursday.

Philippines will likely issue 10-year paper, the source added.

On Wednesday, guidance of mid-swaps plus 85 bps to 90 bps was heard, according to a market source.

Daiwa Securities Capital Markets, Mitsubishi UFJ Securities and Nomura Securities Co. are leading the offering.

Alliance Oil shops offering

The Russian Federation's Alliance Oil Co. Ltd. (/B+/B) is also in the market with a benchmark-sized bond offering.

Alliance is shopping dollar-denominated Rule 144A and Regulation S global bonds.

The European roadshow was set to conclude on Thursday in Zurich and Geneva. Marketing will begin on Monday in Los Angeles.

The size is expected to be $500 million to $750 million, a market source said.

The tenor of Alliance Oil's new paper is expected to be in the five-year to seven-year range.

The Moscow-based company expects to get the deal done at a rate south of 10%, the source added.

More inflows eyed

Dedicated emerging market bond funds saw their 15th consecutive week of positive flows, according to EPFR Global.

The funds took in a combined $297 million during the most recent week.

That split was approximately even between the hard currency funds, the local currency funds and the blended funds, according to EPFR's Cameron Brandt.

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