Pricing streak hits seven days; Kexim prices Ps. 1 billion; traders wait for jobs data; Brazil '34s up more

By Aaron Hochman-Zimmerman

New York, Oct. 4 - Emerging markets had a motionless day as investors looked ahead to non-farm payroll data due Friday morning.

The primary extended its run of new deals to seven days as Export-Import Bank of Korea priced a 1 billion Mexican peso deal.

Trading was very light although Brazil's government bonds due 2034 posted gains which added to its strong performance over the week.

"Tomorrow's going to be a big day," said a syndicate official who specializes in Latin America.

The effects of the data release could take the market in either direction, the official said.

"It really depends on the number," he said.

"People won't go long into the weekend," he said, adding that investors will hedge their bets if they find it is too difficult to determine the market's reaction.

"We're waiting to see what happens globally," another syndicate official said.

Friday still looks to be a very quiet day, the official said, as many will be off for a Jewish holiday and the market closes early ahead of the full close on Columbus Day in the United States.

Investors' attention drifted more and more towards Friday's non-farm payroll figures and away from trading.

The biggest question is the impact the data will have on the Federal Reserve Bank's decision-making over future rate cuts, a market source said.

Other concerns regard revisions to August's poor payroll numbers and how Friday may affect the struggling dollar, the source said.

The dollar's tumble has pushed it to historic lows against many world currencies, driving up export costs in countries around the world, another market source said.

Even though the euro is at all-time highs against the dollar, the continent's own inflation has prevented the European Central Bank from cutting interest rates, the source said.

The dilemma has put the economy in a difficult position, and Europe is beginning to show signs of a slowdown.

Without a rate cut, the euro finally fell in Thursday's session, closing at $1.413.

Volatility eased during Thursday's quiet session. The VIX index, which is the yardstick of market volatility, lost 0.36 closing at 18.44.

Emerging markets' lackluster day was reflected in JP Morgan's EMBI+ index, which widened 1 bp to a spread of 201 bps. The index measures how much extra yield investors demand to buy emerging markets debt.

As Europe drifts, Kazakh banks sink

Traders in emerging Europe were treading water as trading was very light Thursday. Still, the sector is holding up better than the developed side of the continent with the exception of Kazakhstan, which has been dragged under by its banks.

The ECB is stuck between a rock, represented by the plummeting dollar, and a hard place, represented by an inflating euro, a market source said.

However, the waves from a slowdown have not driven any spillover to eastern Europe, said a strategist specializing in emerging Europe.

In market activity, the secondary was calm but strong, a trader said.

Benchmark sovereigns from Russia and Turkey were generally unaffected and flat, he said.

Turkey's government bonds due 2030 held steady at 156.

The Russian sovereigns due in 2030 fell 0.12 to 112.325.

Meanwhile, Kazakhstan is drifting away from the rest of the well-performing region. Investor's opinion of the former Soviet republic is turning sour, said one market source.

Kazakh banks are showing new wides and the source believes things will continue to worsen in a country which the market had overestimated.

Growth had gone too far too fast, which may have exacerbated a "mini run" on the banks last month, the source said. Tuesday, Standard & Poor's placed Kazakhstan on review for a possible downgrade from its BBB rating.

The liquidity crisis gripping the banks may or may not roll over to the rest of the economy, but the source still feels it may be overly optimistic to attempt to hold on to risk through this period of volatility.

Another syndicate desk official noted that people seemed less concerned about the Kazakh banks on Thursday than they did the day before.

'Uneventful day' in LatAm

Latin American trading marked time ahead of Friday's data release without any big winners or losers on the day.

One issue has mildly distinguished itself over the course of the week. Brazil's sovereigns due 2034 are up almost 1.50 for the week and 0.75 on the day's trading. The issue was seen trading around 136.50.

Brazil's highly traded 11% notes due 2040 were seen up 0.10, trading around 134.45.

Argentina, which suffered the greatest drop of the high-betas in Wednesday's trading, was seen off another 0.15 at 91.

In Ecuador, president Rafael Correa's party, with its big victory in the national assembly elections, will assume control of approximately 60% of the legislative body.

The new constitution expected from the legislature is likely to include reforms which will put the central bank more under the control of the president and bring greater revenues to the government from the country's natural resources, much like the model set by Venezuela.

When the changes go into effect, they will tie Ecuador's economic success very closely to the price of oil, according to a market source.

With its future based on commodity prices as well as issues about property rights and trade policy, Ecuador will certainly retain its status as a high-beta credit, the source added.

Currently the country depends on oil for 38% of its income.

Ecuador's benchmark 10% notes due 2030 were up 0.25 at 93.50 in trading Thursday.

Asia makes gains before half-day

Asian credits were up as worries over inflation and drought seem to be far in the past.

In the Philippines, the central bank surprised market watchers by cutting its interest rates 25 bps to 5.75% in the face of tempering, but still present, gains in the peso.

The Philippine government bond due 2030 gained 0.50 to close at 132.125.

The peso ended strong on the rate reduction, closing at 44.850 to the dollar.

In China, the larger and more liquid companies among the property developers, once thought to be an Achilles heel of Asian credit, are now looking more stable, a market source said.

There is the constant specter of regulatory risk and fewer homes have been selling in China, but the 10% to 20% price increases during 2007 has made up for the decline, the source added.

With China's growing population, it did not come as a surprise to one syndicate official that property developers are again beginning to show growth potential.

Elsewhere in Asia, Indonesia's government bonds due 2015 were seen up 0.25 at 107.

Primary makes the streak seven days

Seven was a lucky number for the primary market as it was able to price a deal for the seventh straight day.

The Export-Import Bank of Korea provided the only action on an otherwise slow emerging markets day with a 1 billion Mexican pesos offering in the international markets.

Most had not been pinning great hopes on the likely level of activity in Thursday's session as Friday is filled with a data release, an early close, and a Jewish holiday. Still, the mood concerning the primary remained upbeat.

"The market has reopened," said one syndicate desk official.

"I think it would have to be pretty catastrophic to sideline the new issues," the official said about Friday's non-farm payroll data release.

The Export-Import Bank of Korea announced the pricing of 1 billion Mexican peso 10-year notes (Aa3/A/A+) at par with a coupon of 8.61%.

Merrill Lynch had the books for the deal.

Proceeds from the sale will be used for general operations and the repayment of maturing debt.

Kexim is a Seoul-based state owned bank.

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