Emerging market debt stable amid light flows; Bancolombia issues new debt

By Reshmi Basu and Paul Deckelman

New York, May 21 - Emerging market debt was steady Monday amid light trading volumes.

In the primary, Colombian commercial bank Bancolombia SA sold a $400 million offering of 10-year subordinated unsecured notes (Baa3//BB) at 98.661 to yield a spread of 225 basis points more than Treasuries.

The deal came at the tight end of price guidance, which was set at Treasuries plus 225 to 240 basis points.

Proceeds from the sale will be used to purchase a loan portfolio from Bancolombia's subsidiary, Bancolombia Panama SA.

JP Morgan and UBS Investment Bank were lead managers for the offering, which was registered with the Securities and Exchange Commission.

In other pipeline news, IRPC PCL set price guidance for an expected $250 million offering of 10-year notes (Baa3/BBB-) at mid-swaps plus 115 to 120 basis points.

Barclays Capital and Citigroup are joint bookrunners for the Regulation S transaction.

Bangkok-based IRPC, formerly known as Thai Petrochemical Industry, is a petrochemical producer.

And hitting the road, Argentinean Banco Macro SA plans to begin investor presentations for a $100 million equivalent offering of Argentine peso-linked senior unsecured notes due 2012 (Ba1//B+) this week.

Presentations will run from May 24 through May 30, making stops in Europe and the United States. Pricing is expected to take place on Thursday, May 31.

Citigroup is the bookrunner for the Rule 144A and Regulation S (with registrations rights) deal, which comes off the issuer's medium-term note program.

EM steady

Back to secondary trading, spreads for emerging market debt moved wider by 2 basis points Monday as U.S. Treasuries closed higher, sending yields slightly lower. Amid light flows, trading was steady as the sector continued to find support amid a benign market backdrop.

While secondary markets were generally even on Monday, one name did stand out - Brazil, whose bonds rose while its currency and shares in its stock market continued to gain, as investors looked to satisfy their appetite for high-yielding risk assets.

The benchmark Brazilian 11% dollar-denominated issue due 2040 pushed up by 1/8 point to be quoted at 135.25, while its yield was seen narrowing to by about 1 bps to 5.595%.

The Brazilian currency unit, the real, was up more than 1% on the day, strengthening to 1.94 to the U.S. dollar, its strongest level since early 2001. The surge was attributed to increased dollar inflows from exporters and from investors putting money into the buoyant local capital markets.

Another strengthening EM currency- again buoyed by investors being willing to take on risk in the hope of greater returns - is Mexico's peso, which roared to a four-month high Monday, carried along by strong buying in the country's stocks and bonds.

The currency gained 0.30% in dealings, ending at 10.7684 to the U.S. dollar, and at one point approached its highest level in five months, before coming slightly off that peak.

Mexico's peso-denominated 10% bonds due 2036 gave up early gains to end down 0.04 at 126.27, its yield essentially unchanged on the session at 7.73%.

Treasury rally helps tone

Elsewhere, a New York-based trader in Asian debt said that "the market certainly had a pretty firm tone throughout the course of the day. People liked the fact that Treasuries rallied for the first day in what seemed like forever" - actually, it was the first time in seven sessions - "so cash [bonds] caught kind of a late bid and CDS spreads continued to be very well offered and are a couple [of basis points] tighter today."

He noted that Pakistan is in the market with a new deal, in the form of a $1 billion two-tranche offering, "so activity in their cash and CDS picked up," finishing at around 185-195 bps, "kind of where it has been for a while."

The Pakistani CDS had widened out by around 20-plus basis points about a week ago when the country was rocked by anti-government riots in Karachi and a bombing in Peshawar that between them left at least 65 people dead, but "since then [the spreads] have kind of fallen down a little bit," back to current levels.

"We saw decent sellers of it over the last few days," he added.

Philippines brushes off S&P decision

Elsewhere in the region, the trader said, CDS spreads on Philippine government debt have come in to around 99-100 bps versus levels around 103-104 last week.

The New York market shrugged off weakness seen earlier in Asia after Standard & Poor's affirmed the Philippines' current debt ratings - but did not upgrade it as some market participants had been hoping. They had surmised that the ratings agency would have been more impressed by the progress which Manila had made over the past several years in cutting its expenditures and debt levels, as well as its plans for further debt and borrowing costs.

"They [S&P] affirmed the ratings. They didn't do anything negative. I guess there might have been some people who thought they would put them on watch for an upgrade, but for the most part, investors that we were in touch with basically said 'OK.' It had very little effect on trading."

Apart from the cash sovereigns and related CDS contracts in Asian names, "corporates were very quiet today [Monday]."

Earlier in the Asian session Monday, credits regained momentum after a rocky opening over nervousness from recent currency moves by China to cool its red hot economy.

But as the session progressed, Asian credits retraced earlier losses, mirroring the firm tone seen across regional equity markets.

Furthermore, the monetary moves by China failed to register any impact during New York trade as well, according to market sources.

The "impact was negligible," according to an analyst.

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