Trading light before Fed meeting; Argentina soars after election; Wharf prices, others fill pipeline

By Aaron Hochman-Zimmerman

New York, Oct. 29 - Argentina was flying high over the election of senator and first lady of Cristina Fernandez de Kirchner to the presidency, as well as the hope of at least a 25 basis point cut from the Federal Reserve.

But outside Latin America, emerging markets traders were content to sit on their hands and let the world go by ahead of the two-day meeting of the Fed that wraps up on Wednesday.

Meanwhile, the primary was lighting up like Las Vegas as new issues were loaded up in the pipeline.

Still, only one issuer was able to price a deal. China's Wharf Financial Holdings Ltd. pushed $400 million through the pipeline.

Argentina had the lead the way in trading with its discount bonds due 2033 adding almost 4 points.

In Europe and Asia investors were "content to keep the risk in line," said one trader who believes that trading will be very light until the dust settles from the Fed's decision.

After the market digests any possible rate cut, "risky asset markets will trade firm on the back of the Fed," he said, "spreads will grind tighter."

The VIX index, the gauge of market volatility, hardly moved throughout the day. The index closed 0.31 higher at 19.87.

As a sector emerging markets experienced what one trader called a "seesaw market," which resulted in JP Morgan's EMBI+ index closing little moved at 198 bps. The index, which measures the amount of extra yield investors demand to own emerging markets credit, tightened just 1 bp.

Argentina's huge gains lift LatAm

The doors blew off trading in Argentina as the hopes of many were answered with Sunday's election of Cristina Kirchner to the presidency.

Many were anxious to see the doubt over the country's direction put to rest.

"I think the story that played out as 'most everyone was expecting," Bear Stearns fixed income research analyst Alberto Bernal said about the Argentine elections.

"Nestor Kirchner was less friendly to the international community than Cristina Kirchner appears to be," he said, adding "Cristina Kirchner said that she wanted foreigners to be increasingly proud of Argentina's achievement; I take that to be a bullish sign."

The events propelled Argentina's high-beta 8.28% notes due 2033 up 4 points to 99.30.

Still more help for Latin American issues came from the anticipated rate cut, which the market expects to be 25 bps, Bernal said.

However, he noted that his colleague, Bear Stearns' chief U.S. economist John Ryding, expects no change on rates.

"It is a wait and see mood regarding the sentiment of the market heading into the Fed meeting this Wednesday," he said.

Nonetheless Venezuela's government bonds due 2027 still took on healthy gains on the session and were up 0.62 in trading at 109.12.

Brazil's sovereigns saw similar gains, as its notes due 2037 were quoted up 0.68 at 115.18, and the bonds due 2040 were spotted at 134.60 bid, 134.70 offered.

In corporates Empresa de Energia de Bogota was "on fire," said a trader.

The Colombian energy company priced its 8¾% notes at par on Oct. 24 and they were quoted at 103.625 bid, 104.125 offered on Monday.

Europe 'utterly dead'

Elsewhere emerging Europe was in fact "utterly dead," according to one trader, who said the sector was "treading water, watching and waiting" for a Fed rate reduction.

However, the prospects of an easing in lending rates from the United States came under some doubt from some corners of emerging markets.

Despite the doubts, "my sense is so far this morning that people are banking on a rate cut," the trader said.

During Europe's Monday afternoon, the trader said that at that moment he thought the market could do without the cut.

"Gun to my head: I say no move," he said, but he conceded that market sentiment will have the next two days to persuade Federal Reserve chairman Ben Bernanke of the need for a reduction.

"The market's won before; I'm sure it'll win again, won't it?" he asked.

In Turkey, the government received a warning of "serious consequences" from Iraqi foreign minister Hoshyar Zebari if Turkey decides to go ahead with its planned invasion of Iraq.

The Turkish government demanded the Iraqis hand over leaders of the Kurdistan Workers Party (PKK), but the Iraqis claim the rebel group is not under their control.

Turkey's benchmark government bonds due 2030 were spotted trading unchanged at 158.00 bid, 158.125 offered.

Meanwhile Russia's sovereign due 2030 traded off 0.125 at 112.875 bid, 113 offered.

Asia also waiting for Fed

Asia followed the same pattern as Europe by sitting out the day, although it was a Chinese issuer which produced the only deal to open the week in the primary.

In the secondary, benchmark issues were stable in light trading.

The Philippine sovereigns due 2030 were up 0.375 to trade at 134.50 bid, 134.875 offered.

Indonesia's government bonds due 2017 have held very still over the last few sessions, rarely departing from a bid of 105.5. The issue managed to continue that pattern for another day as it dropped down 0.25 back to 105.5 bid, 105.875 offered after gains on Friday.

Pakistan's bonds due 2017, which gained much ground as former prime minister Benazir Bhutto returned to the country with hopes of advancing democracy, have traded little since the turmoil surrounding her return has died down.

Even so, on very low volume trading, the issue was seen up 1 point at 92 bid, 93.5 offered.

Primary heating up

The gates were open in the primary on a slow Monday for trading. The new issues rolled out with a sense of urgency, but only Wharf Financial's $400 million priced.

"The longer we go with these deals getting printed ... then that conveyer belt may start to pick up a little," a trader said about the chance of another burst of activity in the primary.

However, "there's still plenty of doommongers out there; for every five guys that are positive and solid, there's five guys who are saying it's the end of the world," he said.

Wharf prices, Sanluis, Petrobras talk

China's Wharf Financial Holdings priced $400 million of 10-year notes (/BBB-/A-) at 99.882 with a coupon of 6 1/8% to yield 6.141% at a spread of mid-swaps plus 110 basis points.

HSBC and UBS had the books for the deal.

The deal came at the low end of talk for a spread of 110 bps to 115 bps.

Wharf Finance is a property and infrastructure investment firm based in Hong Kong.

Mexico's Sanluis Corporacion SAB de CV released talk in the 11½% area for its $275 million offering of 10-year bonds (B2//B).

Morgan Stanley will act as the bookrunner for the deal, which is expected to price the week of Nov. 5.

Proceeds will be used to refinance existing debt.

Sanluis is a Mexico City-based auto parts manufacturer debt.

Brazil's Petroleo Brasileiro SA talked its planned $1 billion 10-year bond at Treasuries plus 167 basis points.

The talk has been tightened from the Treasuries plus 170 bps area.

The notes are expected to mature in March of 2018.

Citigroup and UBS will act as bookrunners for the Sao Paulo-based oil producer.

New issue parade

Perennial issuer OAO Gazprom announced it will issue ¥50 billion of notes in two tranches (A3/BBB/BBB-) worth ¥25 billion each.

The three-year tranche was talked at mid-swaps plus 150 bps to 160 bps.

The five-year tranche was talked at mid-swaps plus 160 bps to 170 bps.

Citigroup, Mizuho Securities and Societe Generale will bring the deal to market.

Gazprom is a Moscow-based government controlled oil producer.

Brazil's Grupo Unialco announced a $150 million intermediate-maturity bond (B2/B/) issue.

ABN Amro was mandated as bookrunner for the deal.

A roadshow will be held the week of Oct. 29 and pricing is expected the week of Nov. 5.

Unialco is a sugar and ethanol producer based in Guararapes, Brazil.

China's Country Garden announced plans for a dollar-denominated two-tranche bond (Ba1/BBB-/) offering.

The tranches are expected to have five- and 10-year maturities.

Morgan Stanley and UBS will act as bookrunners for the deal.

Country Garden is a Shunde, China-based real estate developer.

Colombia's Empresa de Telecomunicaciones de Bogota has asked Merrill Lynch and Deutsche Bank to manage an upcoming bond issuance.

The source believes the deal may be denominated in Colombian pesos.

ETB is a Bogota-based telecom provider.

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