Emerging markets sleepy as Easter approaches; Banco ABC, Banco Santander Brasil price notes

By Christine Van Dusen

Atlanta, March 31 - Emerging markets were nearly silent on Wednesday as the Easter holiday approached and Treasury yields fell on the news of lower-than-expected U.S. employment numbers, market sources said.

"It's very dull here," a London-based source said.

There likely won't be any "real action" until after Easter, a London trader said. "It's the time of year. A lot of people are out on holiday so there's nothing really going on. There won't be a lot before the end of the week."

Also contributing to the sluggish tone was the decline in Treasury yields, stemming from the ADP National Employment Report, which showed that private sector employment in March had decreased by 23,000 when forecasts had called for a gain of 40,000.

The next economic report, a look at payroll growth for March from the U.S. Department of Labor, comes out Friday.

"Nothing was moving in the secondary," the London source said. "Investors are waiting until the month is over and we're into April. Then they'll start buying again."

Prices in emerging markets didn't move much on Wednesday, "so spreads absorbed the Treasuries shock," an emerging markets strategist said. "Treasury yields are down 3 basis points, so if emerging market yields are constant, then spreads are going to be wider. The [JPMorgan Emerging Markets Bond Index Global] is wider by 3 bps."

Latin America gets attention

Argentina, which plans to swap up to $20 billion in debt on April 14, was one of the day's biggest underperformers.

"Discounts are down almost 2 points," the strategist said. "Perhaps there are some investors taking profits on the restructuring expectation."

Venezuela also got some attention after whispers that the sovereign would see a default increase in the next year or two. But the strategist called such an outcome "highly unlikely. When you look at their reserve position, it looks pretty sound."

Despite the day's slow pace, two Sao Paulo-based banks did bring deals to market.

Banco ABC Brasil SA priced $300 million 7 7/8% tier 2 notes due 2020 to yield 8 1/8%. And Banco Santander Brasil priced $500 million 4½% notes due 2015 at 99.77 to yield Treasuries plus 200 bps.

Santander was 100.05 bid, 100.15 offered, a Brazil-based market source said. And ABC was 98.4 bid, 98.5 offered.

EM bond funds 'solid'

Also on Wednesday, data tracker EPFR Global reported that bond funds saw "solid weeks" in March as "monetary policymakers in key markets talked - for the most part - in dovish tones."

"Investor appetite for exposure to emerging markets continued its recent recovery going into the final week of first-quarter 2010," and emerging markets bond funds had "their second-best week on record," the report said.

Banco ABC prices notes

Banco ABC Brasil priced $300 million 7 7/8% tier 2 notes due April 8, 2020 (Ba1) to yield 8 1/8%, according to a market source.

HSBC, Banco Itau and Santander were the bookrunners for the Rule 144A and Regulation S deal, which came in at the low end of price talk in the 8¼% area.

Proceeds will be used for increasing the company's capital base for portfolio growth.

Banco Santander sells notes

Banco Santander Brasil priced $500 million 4½% notes (Baa2/BBB-BBB) due April 6, 2015 at 99.77 to yield Treasuries plus 200 bps, a market source said.

Deutsche Bank, JPMorgan and Santander were the bookrunners for the Rule 144A and Regulation S offering, which came in at the high end of talk.

Proceeds will be used for general corporate purposes.

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