Emerging markets resilient amid Treasury drop; CSN reopens, Thai Aromatics sells $300 million

By Reshmi Basu and Paul A. Harris

New York, July 14 - Emerging market debt showed resilience Thursday, despite U.S. Treasuries marking a new range.

In the primary market, Brazilian steel maker Companhia Siderurgica Nacional S.A. reopened its 9½% perpetual preferred shares (B1/BB-/BB-) to add a further $250 million.

The deal priced at par to yield 9½%.

After the retap, the issue traded up in the secondary. The issue was spotted at 100 3/8 bid, 100 5/8 offered, according to an analyst.

The retap brings the total size of the deal to $750 million. The original $500 million deal priced on July 7 after being massively upsized from a planned $150 million.

Credit Suisse First Boston and Deutsche Bank Securities were joint bookrunners for the Rule 144A/Regulation S reopening.

Out of Asia, The Aromatics Thailand Public Co. Ltd. priced a $300 million issue of 5½% seven-year senior notes (Baa3/BBB) at 99.845 to yield 5.527%.

The notes priced at a 150 basis points spread to U.S. Treasuries, on the tight end of the 150 to 155 basis points price talk.

ABN Amro and UBS Investment Bank ran the books for the Regulation S-only offering.

The deal had previously been postponed on June 30.

Also, Export-Import Bank of China priced an offering of $1 billion in 10-year notes (A2/BBB+) at 98.801 to yield a spread of Treasuries plus 85 basis points.

The deal priced at the tight end of revised price guidance. Guidance had been lowered to 85 to 87 basis points more than Treasuries from 87 to 92 basis points.

BNP Paribas, Citigroup, HSBC, and Merrill Lynch were joint lead managers and joint bookrunners. Bank of China International and Goldman Sachs were also joint lead managers.

The new Asian issues "are being absorbed pretty well," said a trader.

"The market backdrop is very solid. Better buyers across the board," he added.

Meanwhile, Iansa Overseas (Cayman) plans to issue $100 million of seven-year senior unsecured notes to refinance existing debt. Parent Empresas Iansa SA will guarantee the notes.

A U.S. roadshow is scheduled to start on Monday. ABN Amro will run the Rule 144A/Regulation issue.

Also Camargo Correa Cimentos SA, (B1/BB-) via its offshore special purpose vehicle Caue Finance Ltd., set price guidance for an offering of $150 million in 10-year notes at the 9% area.

The issue is expected to price Friday morning.

Morgan Stanley is running the Rule 144A/Regulation S offering of senior unsecured notes.

And Argentina's finance ministry announced that it will issue $500 million of dollar-denominated bonds, according to a buy-side source. Argentina will sell the $500 million of Bodens due 2012 on July 18.

EM resilience

Even a U.S. Treasuries pullback could not stop emerging markets from advancing Thursday.

The Treasury market slumped late afternoon in response to a disappointing auction of 10-year Treasury Inflation Protected Securities.

The market had rallied earlier when the Labor Department reported that inflation was tame for June.

By the close, the yield on the 10-year stood at 4.18%.

Nonetheless, warm and fuzzy feelings continue to permeate throughout the asset class, said sources.

The market is deriving strength from the search for yield, said Enrique Alvarez, Latin America debt strategist for think tank IDEAglobal. Investors are looking for yield wherever they can find it.

"What is a little contradictory is that the 10-year note has broken out of a trading range that it had observed for a long time.

"We are above 4.15% on the 10-year. It doesn't seem to be shaking us and that's pretty interesting," Alvarez added.

The ability of emerging markets to move higher despite a fall in Treasuries is more proof of the market's resilience, he remarked.

Meanwhile, a trader said that spreads on the JP Morgan EMBI+ Index were tighter by three basis points. But he added that price action was mixed.

During the session, the Brazil C bond was 0.062 higher to 102.312 bid. The Turkey bond due 2030 added a quarter of a point to 142¾ bid.

Oil producers such as Russia and Venezuela ticked lower as oil prices fell to $57.85 per barrel. The Russia bond due 2030 slid 1/8 of a point to 111 bid. The Venezuela bond due 2027 was down 0.05 to 105.35 bid.

Colombia fell hard during the session. The Colombia bond due 2033 slid 1¼ points to 117¼ bid.

A sellside source that there were no drivers behind Thursday's resilience. Instead it is the result of a market that has posted a strong performance in the last month.

"Our market has been strong already for a few weeks. I think there is a lot of cash out there. And investors are steadily putting that to work.

"And nobody is finding a reason for the market to trade down."

Alvarez added that the U.S economic story is seeing more life as the equities market gains more traction, which in turn is favoring the Latin America.

Another plus for the U.S. economy is the cooling of oil prices, he added.

Fundamentals versus technicals

Furthermore, the market's performance is more of a fundamental story than a technical one, according to Alvarez.

"A technical story would be that it has broken out above highs. And it really hasn't," he noted.

For instance, the Brazil bond due 2040 has not come close to hitting above a 120 bid in recent sessions. "Instead, it has been hovering at 119 handle," he said.

"Nonetheless, on a spread basis, we continue to tighten because Treasuries are moving against the market.

"It's not a real technical story," remarked Alvarez. "It is a good fundamental story linked to a global liquidity story."

The sellside source agreed that fundamentals are helping to push the market higher.

"Pretty much all of the sovereigns in Latin America are done with their financing," he said.

"In Europe, there's only a slight amount that needs to be done by Turkey. And Philippines is the only one that has a lot of external financing to be done in the market."

He added that many of the sovereigns have even completed their pre-financing needs for 2006.

But said that he is mindful of the potential eruption of political noise in Latin America at the end of the year as the political cycle turns.

"Fundamentally, everything is in good shape. And technically, the market is very, very strong," remarked the sellside source.

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