Risk appetite reappears; Brazil, Barbados, Shimao price deals; Argentina, Venezuela rise

By Christine Van Dusen

Atlanta, July 27 - Emerging market debt saw little change in tone on Tuesday and remained "very firm overall," a market source said, even though the Treasury market was weaker and U.S. consumer confidence has declined to its lowest level in months on worries about the labor market and current economic conditions.

Even embattled Hungary - which recently cut short its talks with the International Monetary Fund and on Tuesday saw capitol city Budapest facing a possible ratings downgrade - got a boost after a solid debt auction that strengthened the sovereign's currency.

All of this has had "little impact on the positive momentum that has been in place in EM in the last few weeks," a trader said. "Risk appetite is reappearing."

So in general, a source said, "there's the same notion of tighter spreads due to over-abundant liquidity."

The JPMorgan Emerging Markets Bond Index Plus spread was at about 273 basis points, tighter by about 10 bps.

Brazil prices add-on

The market on Tuesday was "very absorbent," said Enrique Alvarez, debt strategist with think tank IDEAglobal. "There's plenty of yield-hunting going on."

So it was a fine time for Brazil to come to market with a $750 million add-on to its $787.5 million 4 7/8% notes due 2021. The Securities and Exchange Commission-registered deal, via Deutsche Bank and Bank of America Merrill Lynch, priced at 102.707 to yield 4.547%, according to an informed market source.

The original issue, which was upsized from $750 million, priced on April 15 at 98.978.

Proceeds will be used for general budgetary purposes.

"There's plenty of appetite for what they're trying to make into a 10-year benchmark," Alvarez said. "The timing is extremely, extremely well calculated."

The original 2021 bonds were "just moderately off, about a ¾ of a point" on Tuesday, he said.

Other than this Brazil tap issue, the Latin American sovereign space has been fairly quiet. But the market expects to soon see Chile's $1 billion dollar-denominated notes and $500 million Chilean peso-denominated notes due 2020. The deal is on a roadshow this week.

That deal will benefit from "a huge scarcity factor," Alvarez said. "I expect it to be heavily oversubscribed. The timing is good for them to launch paper. Spreads are quite tight. I think sovereigns around the region would benefit greatly by approaching the market at this point for their lending needs."

Barbados, Shimao price

The primary market also saw pricing from Barbados, which printed $200 million 7% notes due 2022 at 98.411 to yield 7.2%, or Treasuries plus 416.2 bps, a market source said.

Deutsche Bank was the bookrunner for the Rule 144A deal.

And Shanghai-based developer Shimao Property Holdings Ltd. priced $500 million 9.65% senior unsecured bonds due 2017 at par to yield Treasuries plus 718 bps, a market source said.

Morgan Stanley, HSBC and Standard Chartered were the bookrunners for the Regulation S deal. Proceeds will be used to repay existing debt, to finance existing and new development projects and for general corporate purposes.

Also on Tuesday, a source said Hong Kong-based power plant management company China Resources Power Holdings priced $500 million notes due 2015 via Goldman Sachs and Morgan Stanley. Details on the deal were not immediately available.

These new issues have helped "feed into the demand for EM exposure," another trader said.

In general, the market has been successfully digesting new issuance, which is "quite impressive," he said. The number of new deals is "also making a big statement as to the health and breadth of EM."

Argentina, Venezuela outperform

The secondary market on Tuesday was seeing "gainers outnumber losers," he said.

Standouts included high-beta names like Argentina and Venezuela. The Argentina 2033 discount bond was 76¾ bid by mid-afternoon Tuesday, up about a half-point. "You have to take into account that the bond was up about 6% on a cash price basis over the last week," Alvarez said.

And Venezuela's 2027 bonds were 72½ bid, up about a half-point. "That was also up in the last week about 6%," he said.

This was in spite of the saber rattling going on between Venezuela and Colombia.

Venezuelan president Hugo Chavez has said he would block oil exports to the United States if Colombia launched an attack on Venezuela. The two Latin American nations have been at odds since Chavez severed diplomatic ties after Colombia accused Venezuela of harboring guerrilla groups.

"At this point there's not a lot of confidence in the market that this is anything more than saber rattling," Alvarez said. "It's been done before. It distracts the population locally in Venezuela from the pressing issues they have domestically, like inflation, lack of growth, lack of jobs and a very tense environment between the administration and all the media outlets. All of that sort of gets swept under the rug as the focus is on a repetitive playbook that is employed by the government in Venezuela."

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