Emerging markets prices lower but spreads tighten; Braskem prices $500 million

By Aaron Hochman-Zimmerman

New York, May 29 - Emerging markets again saw spreads benefit from declining Treasuries, but still watched prices drop as well.

"Treasuries got smoked today and prices are down, but as far as spreads, everything looks tighter," a syndicate official said.

Inflation and political risk have crept back into the market, particularly in Asia which suffered a difficult day in trading.

Indonesia's bonds due 2017 were hammered for 1.5 points during the session.

In the primary, Brazil's Braskem SA priced an upsized $500 million as the week's success seemed to be "setting the stage for next week," the syndicate official said.

Also, during the week ending Wednesday, emerging market bond funds took on inflows of $62 million, according to EPFR Global.

The figures mark the second week in a row of positive flows into the sector.

Meanwhile, equities put up a strong performance which allowed volatility to drop 0.93 to 18.14, according to the VIX index. The index is a commonly used measure of market volatility.

Treasuries were pushed back again on Thursday as emerging markets tightened by 6 basis points to a spread of 243 bps, according to JPMorgan's EMBI+ index. The EMBI+ calculates the amount of extra yield investors will require to keep assets in emerging markets debt.

Braskem prices $500 million

The primary's success in recent days is likely a precursor to a strong week beginning on Monday, a syndicate official said.

Friday will probably be quiet, he said, but "I think next week could be pretty busy."

"We've got a few mandates and I'm sure a couple of our competitors have a few tricks up their sleeves," he said.

Meanwhile, Brazil's Braskem SA (Ba1/BB+/BB+) priced an upsized $500 million offering of 10-year senior unsecured bonds at 99.127 with a coupon of 7¼% to yield 7 3/8%.

The deal priced with a spread of Treasuries plus 328.4 basis points. It had originally been sized at $400 million.

ABN Amro, Calyon and Citigroup acted as bookrunners for the deal.

Braskem is a Sao Paulo, Brazil-based petrochemical firm.

A source familiar with the deal said the book was three times oversubscribed.

Meanwhile, Argentina's Industrias Metalurgicas Pescarmona SA (Impsa) priced $65 million of one-year bonds at 99.37 with a coupon of 9½%.

The deal was originally announced at $40 million and talked at 11%, but talk was later revised between 10% and 10¼%.

BCP Securities acted as the bookrunner for the transaction.

Impsa is a Mendoza, Argentina-based producer of wind and hydropower equipment.

Also in Latin America, Brazil's Banco Fibra SA (BB-/) issued talk in the 7¼% area for its planned $100 million three-year bonds.

Santander and Standard Bank will act as the bookrunners for the deal.

The bank is issuing through its branch in the Cayman Islands.

Banco Fibra is a Sao Paulo, Brazil-based retail and commercial bank.

'Dire situation' for Asian markets

In Asian trading, "everyone's kind of keeping an eye on Treasuries and oil," a trader said.

"Flows have been kind of quiet," he said, but "it's a dire situation in the local markets."

Indonesia's bonds fell due to "the impending supply," a syndicate desk official said about the expected new sovereign, in addition to the persistent inflation and commodity pressures.

Commodities and oil are contributing to the inflation which is plaguing the nation's economy, a trader said.

The government bonds due 2017 fell 1.5 points to 99.75 bid.

Vietnam's stock market was closed again on Thursday due to what have been described as "technical glitches," a trader said, but he added: "There seems to be some holes in that theory."

Vietnam has been hurt badly by inflation and a host of poor economic data including "one of the larger global real estate bubbles," the trader said.

The dong was seen trading at 16,236 to the dollar.

The Vietnamese bonds due 2016 shed 2 points to 94 bid.

Pakistan hit hard

Also, over the past few days "Pakistan has been getting annihilated," the trader said.

Parliament ministers have been trying to transfer powers from president Pervez Musharraf to the parliament.

At least, "the medium-term outlook is questionable," the trader said, with the five-year CDS nearly 50 bps wider.

The Pakistani bonds due 2017 were quoted at 76 bid, 7 points lower than last Thursday.

Philippines slips

Elsewhere in Asia, the government of the Philippines reset some of its economic predictions and goals on Wednesday, according to the Manila Times.

The Development and Budget Coordinating Committee (DBCC) cut its GDP growth forecast to between 5.7% and 6.5% from 6.3% to 7%.

Also, inflation is now expected at 5.5% to 6.5% rather than the 3% to 4% earlier predicted.

Finance secretary Margarito Teves said that the government is anticipating a PHP 75 billion deficit for the year as spending was increased to ease the burden of soaring commodity prices.

"It's something that we don't want to, but we're prepared to and we're still hoping that it would be lower than that. The prospects right now of a balanced-budget given the very difficult circumstances are not really bright," he said in the report.

The peso was seen trading at 43.95 to the dollar.

The Philippine government bonds due 2030 fell 0.75 point to 129.5 bid.

Thailand braces ahead of possible coup

Rumors of a coup spread from Thailand during the session amid conflicting reports.

The Associated Press reported that the influential Thai army said it might stage a coup as demonstrations broke out in the street over minister Jakrapob Penkair who is accused of insulting King Bhumibol Adulyadej.

Penkair is a colleague of prime minister Samak Sundaravej, who like his ousted predecessor Thaksin Shinawatra, is accused of many counts of corruption.

"No soldier wants to stage a coup to topple the government but I cannot guarantee that there will be no more coup," said army commander general Boonsang Niempradit.

From Thailand, the Bangkok Post reported that Bangkok-based first army commander lieutenant general Prayuth Chan-ocha was recalled from a conference in Europe "fearing possible violence" and petitions against certain senators and ministers of parliament will be circulated by political groups.

"Nobody is foolish enough to undertake a coup. It would make things worse," Niempradit said according to the Bangkok Post.

The Post cited an unnamed "defense source" who only described the army's plan to prevent potential violence, rather than possibly remove the government.

The Bangkok Post is thought to be influenced by the monarchy, a trader said.

Emerging Europe weakens

Trading in emerging Europe slipped in price terms even as spreads tightened thanks to flailing Treasuries.

In Russia, GDP increased by 11.3% over the first four months of 2008, chairman of the central bank, Sergei Ignatiyev said, according to the Itar-Tass News Agency.

Total inflation over the same period was 6.3% compared to 4% during that period of 2007, he said.

Ignatiyev also added that inflation would taper as the price of grain will likely drop to 6,000 rubles per ton from 8,500 rubles per ton in July, according to estimates from the Russian Agriculture Ministry.

Still, the bank considers inflation its biggest challenge.

"We are ready to use any methods to reduce it: interest rates, normative requirements, currency rates, but at the same time we'll do it cautiously in order to avoid lowering of liquidity of the bank sector and slowing down of the economy's rate of growth," he said in the report.

The ruble was seen trading at 23.733 to the dollar.

The Russian sovereigns due 2030 dropped 1.375 points to 113.25 bid.

In Turkey, the economy is still plagued by political risk, according to the Global Political Risk Index of the Eurasia Group, the Turkish Daily News reported.

Since April, Turkey has not moved from its place on the list, which ranks it above India, Egypt and Algeria, but below Russia, Thailand and Argentina.

Whether or not the AK Party will be disbanded by the constitutional court is a major issue, the report said.

The Turkish sovereign bonds due 2030 slipped 0.25 point to 113.25 bid.

Nine hurt in South Ossetia attacks

In Georgia, nine people were reported injured in two separate incidents as violence mounted around the breakaway region of South Ossetia.

Three of the wounded were in a car which came under artillery fire near the village of Mugut, law enforcement told Itar-Tass.

Military observers and delegates from the Organization for Cooperation and Security in Europe (OCSE) are monitoring the investigation.

Also, six people were wounded by a car bomb which exploded in the region's capital of Tskhinvali.

The attacks came on the day South Ossetia marked its independence from Georgia in the wake of the collapse of the Soviet Union.

Eduard Kokoity, the leader of the self-proclaimed republic, accused the government in Tbilisi of plotting the bombing.

"It was a planned terrorist attack, carried out by Georgian secret services," he said, in the report.

LatAm tighter with Treasuries

Latin America quietly traded tighter Thursday with the help of rising yields on U.S. Treasuries.

"There's a weakness in the market as a result of an expectation of higher inflation," a strategist said.

The weakness was not just reserved for the high yield credits, he said.

Brazil, which was upgraded to BBB- by Fitch, reaped only a small benefit from the new rating.

The 7 1/8% Brazilian bonds due 2037 improved by 0.65 point to 113.2 bid, 113.5 offered.

Meanwhile, the high-beta names remained largely unchanged.

In corporates, the $1 billion 10-year 6.369% notes priced by Banco Nacional de Desenvolvimento Economico e Social (Bndes) on Wednesday were better by 0.5 point at 100.5 bid, 100.75 offered.

Venezuela's 9¼% government bonds due 2027 held still at 94.3 bid, 94.8 offered.

Farmers resume road blockades

In Argentina, after earlier promises to keep the new round of strikes less damaging than the initial demonstrations, some farmers again blockaded roads, the Buenos Aires Herald reported.

Farm leaders discouraged the blockades, but some of the farmers were not dissuaded.

Meanwhile, governor Juan Schiaretti of Cordoba, who is known as an ally of president Cristina Kirchner offered support to the demonstrators and criticism of Kirchner's Peronist Party, the report said.

Still, as far as prices are concerned, "things seem to have calmed down a bit," the strategist said.

The 8.28% Argentine bonds due 2033 were seen flat at 80.5 bid, 81 offered.

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