Emerging market debt sees mixed session; Banco Macro up in secondary

By Reshmi Basu, Paul Deckelman and Paul A. Harris

New York, Dec. 12 - Emerging market debt saw a choppy session Tuesday while the Federal Reserve kept fed fund rates unchanged for the fourth consecutive time.

In the primary market, Argentina's Banco Macro SA sold a $150 million offering of 30-year non-cumulative junior subordinated notes (B3//B-) at par to yield 9¾%.

The issue is non-callable for 10 years. If the notes are not called, the coupon steps up to six-month Libor plus 711 basis points.

In secondary trading, the new deal was seen significantly higher, being spotted at 101.50 bid, 103 offered.

Credit Suisse and UBS Investment Bank were joint lead managers for the Rule 144A/Regulation S transaction.

Moving to Asia, CFG Investment SAC in conjunction with China Fishery Group Ltd. priced an upsized $225 million issue of seven-year senior notes (B1/B+) at par to yield 9¼%.

The yield came at the tight end of the 9 3/8% area price talk.

HSBC ran the books for the Rule 144A/Regulation S issue of notes, which was increased from $200 million.

The issuer is a Hong Kong-based company that manages and operates fishing vessels for coastal and deep sea industrial fishing.

Uneven day for EM

Emerging market debt saw a volatile performance Tuesday while recently troubled Ecuador posted solid gains for the second straight day.

Tuesday's session followed several days in which the asset class has rallied. In particular, the long ends of the yield curve for Argentina and Venezuela have outperformed.

But at the start of the New York trading day, the market was more defensive in anticipation of the Federal Reserve's decision, according to Enrique Alvarez, Latin America debt strategist at think tank IDEAglobal.

As expected, the Federal Open Market Committee kept rates steady at 5¼% while repeating its worries over inflation.

A trader who tracks Latin American bonds said that things were "not too exciting today [Tuesday]," particularly in the U.S. debt markets, which influence emerging markets.

"You had the Fed come in and didn't change the funds rate ... Treasuries kind of bounced at the end of the day, and left unchanged," he added.

"It was an uneventful day."

But he did see some buying of Venezuela debt in the morning, which eased up by the afternoon.

"We were pretty much unchanged on the day."

In trading, the Venezuelan bond due 2027 was up 0.10 to 126.10 bid, 126.75 offered.

Mexican bonds were "pretty quiet for the whole day," he said, while in Brazil, the benchmark bonds due 2040 were "right where we closed them last night, so I can't imagine too much happened there."

Brazil hits barrier

Overall the Fed's decision did little to impact emerging markets, in what Alvarez described as a "lackluster" performance by the asset class.

"I think the real problem that you are facing here is that Brazil is pushing up against historical price highs and in many cases, historical spread tights. And I think the market is having a real issue breaking through that," remarked Alvarez.

Until that event happens, the market will not be able to really progress, he added.

On Tuesday, the country's debt saw a mixed session with spreads widening by two basis points. In trading, the Brazilian bellwether bond due 2040 was spotted unchanged to 133.25 bid. 133.40 offered.

Ecuador up again

Elsewhere, Ecuador scored another day of solid returns. The market appears to be taking comfort from comments made by former president Lucio Gutierrez at a conference hosted by Analytica Securities and UBS on Monday, said Alberto Bernal, fixed income analyst for Bear Stearns, in a report.

The former president presented a more bullish view over the state of affairs in Ecuador.

He observed that the probability of "president Correa going 'extreme' was rather low, mostly because the political risk of doing such a thing was too high," reported Bernal.

Gutierrez noted that the opposition controls 70% of the congress, which means it could be possible for congress to remove the president from office if it decided the president had violated the constitution.

During the session, the Ecuadorian bond due 2015 gained 1.25 to 95.75 bid, 96.75 offered.

Quiet in Asia

Turning to Asia, a trader described the market as "very quiet."

During the session, the Philippines bond due 2025 eased 0.13 to 142.50 bid, 143.18 offered. The Indonesian bond due 2025 gained 0.13 to 122.75 bid, 123 ½ offered.

Gazprom tightens

In corporate news, OAO Gazprom has seen a run-up in its corporate bonds on reports that Royal Dutch Shell has agreed to cede control of its Sakhalin-2 project to the Russian state gas monopoly.

In the last week, the corporate bonds have been trading 15 basis points tighter to the Russian curve, according to a market source,

In trading Tuesday, the Gazprom 8 5/8% bond due 2034 moved up 0.18 to 129.85 bid, 130.25 offered.

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