Emerging markets sink with equities; Independencia pulls tender offer for notes; spreads steady

By Aaron Hochman-Zimmerman

New York, Feb. 23 - Emerging markets could not beat the trend and traded lower on Monday, but spreads along with Treasuries were able to hold their ground.

Equities on the Dow Jones Industrial Average gave back 250 points, but Treasuries hardly moved ahead of a $94 billion supply dump on the market.

All the while, emerging market bonds were "equity market following," a buysider said.

Generally negative trading still managed to produce a relatively strong day for Venezuela despite falling oil prices.

The benchmark bonds due 2027 added 1 point.

Meanwhile in the primary market, reports surfaced that Japan was ready to back a samurai bond from Indonesia to the tune of $1.5 billion.

Equities were taken to the woodshed on Monday while volatility made a steady climb of 3.32 to 52.62, according to the VIX index. The index is an often used yardstick of market volatility.

With Treasuries refusing to give more than an inch, emerging markets widened by only 6 basis points to a spread of 668 bps, according to JPMorgan's EMBI+ index. The EMBI+ estimates the amount of extra yield investors will demand to hold assets in emerging market debt.

LatAm 'pretty bad'

Latin America dragged itself through a "pretty bad" day, a strategist said.

Investors sat befuddled and watched equities sink to decade-long lows.

The major news from the category came from Brazil, where beef producer Independencia SA cancelled the tender offer for its 9 7/8% notes due 2015 and 9 7/8% notes due 2017.

In a statement, Independencia cited "the fluid and rapidly changing global economic environment and the impact [of] the economic crisis" for the withdrawal.

Ultimately, "it may not be such a bad thing for investors," said the strategist, who was never fond of the tender in the first place.

Still, it is unfortunate that conditions exist which forced Independencia to pull the deal, the strategist said.

The company previously offered to purchase up to $144.38 million of the notes, including a cap of $61.88 million of the $224 million of 9 7/8% notes due 2017, as well as a maximum of $82.5 million of the $300 million of 9 7/8% notes due 2015.

For each $1,000 principal amount, the company previously said it would pay $660 for each series of notes, including a $30 consent payment for those who tendered by the early deadline.

Independencia is a Jordanesia, Brazil-based and Cayman Islands-incorporated beef producer.

Brazil's 11% bonds due 2040 were 0.45 point lower at 122.75 bid.

In Argentina, the CTA umbrella union announced that the country hemorrhaged 47,000 jobs in November and December of 2008 and another 14,700 jobs were in jeopardy, the Buenos Aires Herald reported.

The continued protests of the farmers have put investment in the country in a "pretty bad" light, a buysider said.

The 8.28% Argentine discount bonds due 2033 added 0.875 point to trade at 27.375 bid.

Meanwhile, Venezuela dealt with weak oil prices, which would not even be buoyed by OPEC production cuts.

Light sweet crude was seen trading as low as $38 per barrel, but after a difficult end of last week Venezuela saw a bit of recovery.

The 9¼% Venezuelan sovereigns due 2027 rebounded by 1 point to 53.5 bid, 54.5 offered.

Japan to back Indo samurai

On Saturday, Japan agreed to support a samurai bond from Indonesia to as much as $1.5 billion, said reports from the Asean+3 meeting in Thailand.

Indonesia finance minister Sri Mulyani Indrawati met with Japan parliamentary secretary for finance Shinsuke Suematsu at the summit to negotiate the support.

"The fund will be provided in the form of a guarantee by the Japanese Bank for International Cooperation to the Indonesian government in issuing yen-denominated foreign bonds in the Japanese capital market," Mulyani said in the report.

"Under the deal, if the bond fails to lure the appetite of Japanese investors, and the yield is deemed too expensive for the Indonesian government to bear, Japan can convert the fund into ordinary loans to help cover the budget deficit," she added.

Also in Asia, the Philippines' central bank tried to quell fears that the country's budget would be severely affected by borrowing, which may soon exceed its debt program by PHP 150 billion or 2% of GDP.

"We won't get into serious problem if deficit is kept at that level," bank governor Amando Tetangco said, according to the Manila Times.

Tetangco acknowledged that the spending deficit is a problem, but one which the government can handle.

"For another day, we have to talk about exit strategy. It's easier to formulate an exit policy for the monetary policy than fiscal policy. So we need to start talking about that too," he said in the report.

The peso was seen trading at 48.25 to the dollar.

Emerging Europe heads lower

Emerging Europe slowly slipped deeper into its own problems as local equities and markets in the United States greased the slope.

In Kazakhstan, the country's ailing economy will force the government to halt progress on the expansion of energy facilities in the city of Aktau, said energy and mineral resources minister Sauat Mynbayev, according to reports.

The projects are part of a joint venture with Russia with most of the energy produced returning to Kazakhstan and only a portion set aside for export.

The governments were to collaborate on the construction of nuclear and natural gas processing plants.

The Russian government bonds due 2030 slipped 0.25 point to 89 bid, 89.5 offered.

Also in the category, the still suffering Turkey stabilized, but still lost on the session.

The Turkish sovereign bonds due 2030 also lost 0.25 point to 157 bid, 127 offered.

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