New Russian corporate bonds trade higher; local currency funds outdraw hard currency funds

By Paul A. Harris

St. Louis, March 5 - Emerging markets were quiet but very firm, according to a New York-based syndicate banker who spoke early Friday afternoon.

February's non-farm payroll numbers, which beat expectations by showing a loss of 36,000 jobs versus the 50,000 job loss the market anticipated, appeared to buoy Friday's thin trading, the source commented.

Bank of Moscow's new 6.699% notes due 2015 (Baa1//BBB-), which priced at par on Thursday in a $750 million issue led by Credit Suisse, Goldman Sachs and JPMorgan, were par ½ bid on Friday, the banker said.

Alliance Oil Co. Ltd.'s new 9 7/8% senior unsecured notes due 2015 (/B+/B), which also priced at par in a $350 million issue on Thursday, were 101 bid on Friday.

BNP Paribas, Credit Suisse and JPMorgan led the deal from the Moscow-based energy company.

"Supply is going to be thin over the next two weeks because we are in a blackout period," the banker added, referring to corporate issuers' requirements to provide fresh financial numbers before bringing new bonds to market.

Earlier Friday, during the European afternoon, Brazil's five-year CDS were 127 bps mid, 1 bp wider on the day and 3 bps tighter on the week, according to a market source.

Mexico's five-year CDS were 119 bps mid, 1 bp tighter on the day and 8 bps tighter on the week.

Russia's five-year CDS were 159 bps mid, 2 bps tighter on the day and 17 bps tighter on the week.

OAO Gazprom's five-year CDS were 226 bps mid, 5 bps tighter on the day and 24 bps tighter on the week.

EM funds see inflows

Dedicated emerging markets bond funds took in $684 million of cash during the week to March 3, according to EPFR Global's Cameron Brandt.

That compares with the previous week's $493 million and extends year-to-date inflows to $4.3 billion.

With slightly less than 10 months remaining in the year, dedicated emerging markets bond funds have already seen inflows totaling approximately half of all of 2009's total inflows, Brandt said.

Of the present week's $684 million, $201 million came into hard currency funds, $328 million came into local currency funds and the remaining $155 million came into blended funds.

Yield versus liquidity

Of the three fund categories, the local currency funds have been the year's outperformer in terms of attracting cash, Brandt said.

Local currency funds have taken in $2.22 billion thus far in 2010, greater than 50% of the $4.3 billion year-to-date inflows to the combined funds.

The fact that the local currency funds are outdrawing their counterparts reflects a reach for yield, a New York-based syndicate banker commented when hearing the numbers.

"Local currency bonds tend to have much higher yields," the source said.

"It's a trade-off between yield and liquidity: much higher yield, much less liquidity."

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