Emerging markets mostly unchanged, quiet; Venezuela flying on vote; primary snoring

By Aaron Hochman-Zimmerman

New York, Dec. 3 - Emerging markets just barely kept its nose above the horizon as investors returned Monday after a relatively strong week.

Trading was largely flat, but the high betas were sinking with the notable exception of Venezuela, which saw its benchmark bonds due 2027 up 3.25.

But there were no new issues.

"It's really quiet, no one's been able to step up," a buyside source said about the primary.

In large part, the only deals which may be able to price are "local currency stuff," a syndicate desk official said.

"I'm just watching the U.S. market out of the corner of my eye," the official said, suggesting it is providing most of the catalysts for emerging markets.

"EM is still very much attached by the hipbone to the U.S. credit markets," said Enrique Alvarez, a Latin America debt strategist at think tank IDEAglobal.

In the United States, Treasury secretary Henry Paulson began talks with subprime lenders to develop a plan to alleviate the housing crisis.

No agreements have yet been signed, but it is likely a three-month freeze will be placed on some homeowners' interest rates. A finalized agreement is expected at the end of the week.

Elsewhere, oil production will be the subject of Wednesday's meeting of the Organization of Petroleum Exporting Countries.

The cartel will discuss a 500,000 barrel per day increase to approximately 31 million barrels per day.

"OPEC is very divided along political lines," Alvarez noted, adding that OPEC may not have the ability to increase production by a meaningful amount.

Light sweet crude was seen trading just below $90 per barrel on Monday.

Volatility was up slightly with the slip in equities. The VIX index was higher by 0.74 to close at 23.61. The index is the standard yardstick of market volatility.

Emerging markets widened by 6 basis points to a spread of 252 bps, according to JP Morgan's EMBI+ index. The EMBI+ measures the amount of extra yield investors are demanding to keep money in emerging markets debt. LatAm mostly flat, Venezuela soars

"To a very light extent," the rally in Latin America continued, according to IDEAglobal's Alvarez.

"From a performance angle there were a couple of upticks," he said.

"We are ultimately back to square one," he said.

Venezuela up on poll

There was a gain in Venezuela where the credits gained on what Alvarez called: "A post-election knee jerk."

Venezuela's president Hugo Chavez was handed his biggest political defeat since becoming president. The people of Venezuela narrowly voted against the referendum he proposed which would have ended his term limits and greatly increased his powers over the national bank and the oil industry.

However, Chavez promised to resubmit the proposal and continue to campaign for the constitutional reforms.

The outcome is a positive for market watchers who see the results as an unexpected roadblock on the path to full socialization in Venezuela, a market source said.

What is more significant is the general weakening of Chavez, the source said.

The opposition may be emboldened and encouraged, and Chavez may have to ease back his agenda and rhetoric to survive as president past the 2012 elections, the source added.

The Venezuelan 9.25% sovereigns due 2027 launched skyward by 3.25 to trade at 101.5 bid, 103.7 offered.

Argentina, Ecuador lower

Outside of Venezuela, the high-betas suffered.

Argentina's 8.28% discount bonds due 2033 dipped by 1 point to 95 bid, 97 offered.

Meanwhile in Ecuador, an assembly formed from members of president Rafael Correa's party that has been tasked with redrawing the country's constitution dissolved the opposition-dominated congress on its first day of work.

Correa, who has been attempting to expand his own power in the vein of Venezuela's Chavez and Bolivia's Evo Morales, has called the country's congress corrupt and ineffective.

Correa is the eighth president of Ecuador in 10 years.

The moves towards greater socialism and consolidation of power may discourage foreign investors, according to a market source.

Ecuador's 10% government bonds due 2030 slipped 0.5 to trade at approximately 96 bid, 97.25 offered.

The political instability has already been priced in, Alvarez added.

Brazil showed its stability by only losing 0.2 from its sovereign bonds due 2037, which traded at 114.2 bid 114.5 offered and a spread of 172 bps.

The highly traded Brazilian bonds due 2040 were spotted at 134.30 bid, 134.45 offered.

In Uruguay, the government began a tender offer for approximately $450 million in debt that comes due before 2012.

The sovereigns due 2011 were seen trading at 104 bid, 105 offered while the bonds due 2015 were quoted at 107.5 bid, 108 offered.

Europe stable on light trading

Both volume and liquidity remained low in emerging Europe as the market tried to maintain the upturn of last week.

In Russia, president Vladimir Putin's United Russia party surprised almost no one as it claimed victory in parliamentary elections. Observers from the Vienna-based Organization for Security and Cooperation in Europe were not allowed the full access they had once expected, but still called the elections "not fair."

A trader specializing in emerging Europe said there was "no reaction to the elections" in the market and no reaction is expected.

The Russian benchmark bonds due 2030 were seen up by 0.35 to trade at approximately 113.95 bid, 114.05 offered. The spread was mostly unchanged at 160 bps.

In corporates, OAO Gazprom's five-year CDS was also flat at 170 bps.

Kazakhstan's banks also continued their recovery on Monday, according to a market source.

Halyk Bank saw the most demand on the day, the source said.

After a period of quiet in the region, Turkey claimed it fired from the Turkish side of the border on a group of rebels of the Kurdistan Workers Party (PKK) inside Iraq on Saturday.

Despite concerns over the conflict weighing on oil prices, Turkish bonds have seen little effect from the cross-border actions.

The Turkish national bank released inflation figures of 1.95% during the month of November, above the generally expected 1.6%, a buyside source said.

The new data takes the yearly inflation figure to 8.4% from 7.7%.

Many are expecting a rate reduction from the central bank on Dec. 13, a buyside source said.

Also, the Agricultural Sale Cooperatives Union called on the government to restructure or forgive the 800 million lira it owes in loans and interest on Saturday, reported the Turkish Daily News.

Turkey's sovereign bonds were seen unchanged at 157.75 bid, 157.875 offered.

South Africa's mine workers will be on a one-day strike on Tuesday to protest on the job safety conditions.

A group of the strikers will protest the government in Johannesburg to enforce more stringent safety regulations on mine owners.

AngloGold Ashanti Ltd., Gold Fields Ltd. and Harmony Gold Mining Co. Ltd. will be affected by the strike.

Asia quiet, unchanged

With the region's benchmark issues mostly flat, Asian trading began the week trading on low volumes.

In the Philippines, the government accepted lower rates for its 182-day and 364-day Treasury bills, but rejected all bids for its 91-day T-bill due to low demand, reported the Manila Times.

The government's benchmark sovereign bonds due 2030 were seen unchanged at 134.375 bid, 134.875 offered.

Indonesia's government bonds due 2017 gained 0.25 to trade at approximately 104 bid, 104.75 offered.

Former prime minister of Pakistan Nawaz Sharif will be banned from participating in the parliamentary elections scheduled for Jan. 8, according to Pakistan's electoral commission.

The commission cited Sharif's criminal record for his exclusion.

Sharif will meet to discuss strategy with fellow opposition leader Benazir Bhutto who is already campaigning for her Pakistan People's Party (PPP) in the upcoming elections.

The Pakistani sovereign bonds due 2017 were traded with typical low volumes at 88 bid, 92 offered.

Issuers not ready to reopen primary

The market spent another day without a headline disaster, but there was nothing which awakened the slumbering primary.

When asked about the action in the primary a syndicate official answered: "Gabon" referring to the debut benchmark dollar bond from the African nation.

"I think everyone is just waiting for Christmas," the official said.

Still, the local-currency markets may see some activity, the official added.

The Philippines' Rizal Commercial Banking Corp. announced plans to issue PHP 5 billion five-year lower tier II notes.

The issue may be increased up to PHP 7 billion.

HSBC and ING will bring the deal, which is expected with a spread 32 basis points to 65 bps over the Philippine dealing system treasury rate fixing (PDST-F).

The spread is expected to bring a yield of 6.9% to 7 ¼%.

The coupon is expected to step up by 80% of the fixed rate treasury notes (FXTN) plus 150% of the initial spread on a net tax basis.

Also in the local markets, Punjab National Bank plans to offer Rs. 5 billion of upper tier II notes and Rs. 3 billion of tier I perpetual series II notes. Both issues will open on Wednesday.

© 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.