Primary pricing streak on fifth day; trading up, but light; CEZ sells €500 million

By Aaron Hochman-Zimmerman

New York, Oct. 2 - Emerging markets kept its stride with gains in light trading and one more deal coming through the pipeline.

The primary refuses to be held down. The Czech Republic's CEZ SA priced €500 million, making Tuesday the fifth straight business day a deal has priced

Secondary prices firms, but have not shown the same strength as the new issues.

"There's not too much liquidity out there today," a syndicate desk official said. "It's been a little quiet, profit taking in equities, volatility is up again."

Trading volume was down, but prices were generally up. Russia made gains even as it threatened to cut off oil to Ukraine, which Russia claims is in arrears. Latin America was higher with Argentina in the lead and even more new deals popping up on the calendar.

In Asia, the Philippines and Pakistan had successful days as the political future is beginning to look brighter in both countries.

Investors did well Tuesday, but, as shown by the light volumes, they shifted back to a reactive posture as market volatility crept higher. The VIX index, the standard gauge of market volatility, rose 0.65 to finish the day's session at 18.49.

Spreads tightened. The JP Morgan EMBI+ index was seen narrowing 2 basis points to a spread of 199 bps. The index measures the amount of yield investors require to keep money in emerging markets.

Russia trading up, making oil threats

With little data coming out of emerging Europe and an initially troubling, but modest bank liquidity crisis in Russia and Kazakhstan, European investors had been content to keep their bets off the table.

One emerging markets strategist feels it is less Russian than "Kazakh banks which are causing the problems right now," he said.

"Investors are reducing exposure," he said.

Despite the recent problems, European market watchers have recently been able to breathe easier as banks made the headlines that some had anticipated.

"People are going to be focused on making sure there aren't going to be any unreported losses," an emerging market syndicate desk official said.

The benchmark Russian government bond traded up approximately 0.31 at 122.325.

Also in Russia, as winter bears down and oil prices are hovering above $80 per barrel at $80.32, the state-controlled oil giant OAO Gazprom threatened to shut the oil pipe line to the Ukraine if a $1.3 billion tab is not paid. In August, threats were made to reduce oil to Belarus, but the flow was uninterrupted after a partial payment was made.

The Russian government has claimed its concern is purely financial and denied accusations that it is using its energy reserves to influence the former Soviet Republics.

Approximately 80% of Russian oil reaching western Europe is transported through the Ukraine, according to Agence France-Presse.

LatAm stronger on low volume

Latin America traded well on light volumes Tuesday, but it is still the market sector which is supporting the continued flow through the primary pipeline.

Banco de Credito del Peru expects to price a $160 million nuevo sol-denominated bond this week, and other issuers are waiting on the calendar for the week of Oct. 8.

In Ecuador, votes are still being counted in the constituent assembly elections which will determine if president Rafael Correa's party will be able to exercise more influence over the economy.

Meanwhile, Correa has also declared a moratorium on oil exploration in the Yasuni National Park. The park is thought to be one of the most biodiverse areas of the Amazon jungle and the world.

The park sits on an estimated 1 billion barrels of oil and Correa has been in negotiations with oil companies vying for drilling rights, the BBC reported.

In return for leaving the rain forest unharmed, Correa has asked for financial backing from abroad to make up for the lost revenue. Already, Germany, Norway and Italy as well as the World Bank have shown serious interest to support Correa's conservationism.

Latin American oil supplier Venezuela saw no change to its high-beta benchmark 9.25% bonds due 2027. The notes traded around 104.80.

Argentina's frequently traded 8.28% sovereigns due 2033 registered gains of around 0.55 putting them at 92.30.

Brazil's benchmark 11% sovereigns due 2040 were seen up 0.30 to 135.05.

Asian political seas calming

Asian trading has seen some added liquidity as buying in Philippines and Pakistan pushed yields tighter.

"There has been a reasonable amount of cash buying; that's been the case in the time zone for the past few days anyway," a trader specializing in Asian debt said.

Better than expected tax revenue data helped boost fundamentals in the Philippines and its benchmark government bond climbed to 131.50.

In Pakistan, Lt. Gen. Ashfaq Pervez Kiani will soon assume control of the politically powerful Pakistani army when president Pervez Musharraf resigns as army chief on Saturday. Kiani and former prime minister Benazir Bhutto have recently held power sharing negotiations, the BBC reported.

The trader does not feel that the marginalization of a controversial figure like Musharraf has caused the buying in Pakistan, but nonetheless Pakistan's sovereigns due 2017 are up trading in the 89.50 to 91 range, he said.

Five-year CDS spreads are in the 350s, he added.

"People reacted well," he said.

Elsewhere in Asia, Indonesia's sovereigns traded flat around 104.50.

Primary pricing streak hits 5 days

The primary has gone from a feverish fire hose of large and even benchmark-sized sovereign and corporate deals to a temperate trickle of smaller-sized corporate new deals.

Latin America has led the way, but not necessarily because it is much stronger than the other sectors.

"It has less to do with Latin America than it has to do with everyone else," a syndicate official said.

Many of the deals which have been passed through the pipeline have been in preparation for a long time, he said.

Extending the streak through Tuesday was the Czech Republic's CEZ AS which priced €500 million five-year notes at 99.866 with a coupon of 5 1/8%.

Citigroup was the bookrunner for the offering due 2012.

CEZ is a Prague-based power distribution company.

TNK-BP plans benchmark

Russia's TNK-BP plans to sell a benchmark-sized bond in five-year and 10-year tranches (Baa2/BB+/BBB).

Guidance has been set at Treasuries plus 345 to 360 basis points for the five-year tranche and at Treasuries plus 350 to 365 bps for the 10-year tranche.

Credit Suisse and UBS will have the books for the deal.

Pricing is expected Wednesday.

The privately owned oil company is based in Moscow.

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