EM coughs up early gains; Venezuela sovereign regains some ground; China mulls mammoth issuance

By Paul Deckelman and Aaron Hochman-Zimmerman

New York, June 28 - Emerging markets opened the Thursday session with an improved tone but bonds "got hit" toward the end of the day trailing the decision by the Federal Open Market Committee of the U.S. Federal Reserve Bank to leave short-term interest rates unchanged.

Meanwhile Venezuela's sovereign paper, lately under significant pressure due to political noise emanating from that oil-rich Latin American country, regained a bit of ground on Thursday.

In the primary market, sources were pondering the possibility that China is considering a bond program that could total $200 billion.

Leaving it at 5¼%

In the secondary sphere, activity was greatly restrained compared with the hectic pace of the previous several sessions, during which bonds had sold off pretty much across the board and spreads on those bonds versus U.S. Treasuries had widened out.

With the U.S. bonds themselves seen on the downside after the Federal Reserve Board said that inflation remains a risk - while keeping its key lending rate at 5.25% - spreads were seen pretty much staying where they were or perhaps narrowing a bit, although the closely watched gauge of average emerging risk spreads, the EMBI+ index compiled by JP Morgan & Co., continued to hover around the upper 160s-170 basis point area to which it had moved during Wednesday's dealings.

A New York-based trader in Latin American issues said that he saw "people buying early," trying to take advantage of lower price levels from Wednesday's advance.

"Then, when the Fed came out [with its announcement of an unchanged key rate, a continued wariness about inflation but a toning down of overly hawkish language issued the previous month], they were just trying to find some ground, but things got hit at the end of the day."

All told, he said there was "not too much action, it was pretty quiet." Asia, he said, "was definitely quiet, while LatAm kind of saw a little bit of a whipsaw today."

A tailwind for Venezuela

He saw Venezuela's bonds - which had been getting pummeled over the past two sessions on investor angst over the withdrawal of oil majors ExxonMobil Corp. and ConocoPhillips from their joint-venture projects with the state-run Petroleos de Venezuela SA, after the government pretty much seized control of those projects as part of Venezuela's march toward socialism - as having "picked up today - they came back."

Venezuela's story "is constantly changing," given all of the political turmoil in the country, making its high-beta bonds among the most volatile in the EM sphere, he said, "a never-ending story."

He saw Caracas' benchmark 9¼% dollar-denominated bonds due 2027 - which had fallen as low as 104.65 on Wednesday - "maybe up a point" from those lows at 105.5 bid, 106 offered.

Argentina's bonds - which, like Venezuela's have been getting drubbed for some time - were seen bouncing back on Thursday, up 1.5% on average despite their volatility. The Par bonds in dollars were particularly strong, up some 1.7% in trading on the Buenos Aires stock exchange and up nearly double that in over-the-counter dealings.

Mexico's bonds were meantime firmer, helped by Standard & Poor's statement that the country might win an upgrade in its BBB foreign currency credit rating should President Felipe Calderon prove successful in getting legislation passed that would increase tax collections.

Its peso-denominated bonds were on the upside, rising along with the currency unit. The yield on the 2015 peso bonds was seen tightening by 1 bps to 7.67%, while the yield on its 2024s were at that same 7.67% level, unchanged on the day.

At another desk, the 7¼% peso bonds was seen up 0.11 point to just below 97, while the bonds' yield tightened 2 bps, to 7.70%.

Chinese juggernaut

In the primary market sources messaged Prospect News with the buzz that The People's Republic of China is pondering a stupendous $200 billion of issuance to gradually offload currency reserves to a state-owned investment vehicle.

All of the new bonds would have maturities of 10 years or longer, the sources said.

Arcor, Lupatech set talk

Argentina's Arcor issued talk of 8 3/8% to 8½% for its $100 million 10-year senior unsecured notes (B+/BB-).

Citigroup has the books.

Elsewhere Brazil-based industrial equipment manufacturer Lupatech Finance issued price talk for its $200 million perpetual bonds (Ba3/BB-) at 10% area.

Citigroup and Merrill Lynch have the books.

KIA, Schahin pull out

But while those two issuers were preparing to price, two more issuers pulled out of planned offerings.

South Korean KIA Motors postponed its benchmark-sized offering of five-year notes (Baa3/BBB-), citing market conditions.

Talk had been set in the area of 90 basis points over mid-swaps.

Credit Suisse, JP Morgan, Korea Development Bank and UBS were the bookrunners.

Elsewhere Brazil's Banco Schahin removed its offer of $100 million three-year senior unsecured notes due (Ba3).

Price talk had been set in the 7½% area.

Merrill Lynch & Co. was the bookrunner.

Transcapital offers $100 million

Finally, Moscow's Transcapitalbank announced plans to sell $100 million 10-year subordinated, lower tier II notes (B2), via ABN AMRO and Credit Suisse.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.