Emerging markets quiet, but tighter; Venezuela leads rebound; Country Garden talks $1.5 billion

By Aaron Hochman-Zimmerman

New York, Nov. 6 - Emerging markets rebounded and tightened down during Tuesday's session after Monday's slide.

Trading was light, but the calm and the improved tone allowed investors to breathe easier as the day managed to avoid further disruptive headlines.

In the primary, talk in the 9% area and 9¾% area was issued for the five- and 10-year tranches respectively of the $1.5 billion bond being offered by China's Country Garden.

In the secondary, high-beta issuer Venezuela, which fell the hardest in trading Monday, bounced the highest on Tuesday. The 9.25% sovereigns due 2027 were seen up 0.8.

"Some of the people came in yesterday fearful after the Citicorp news," a portfolio manager said about Monday's decline.

However, "the market rebounded from what happened [Monday]," said Jefferies & Co.'s head of emerging markets Erich Bauer-Rowe.

"The market was really calm," he said. "It's a wait and see."

The market's moves have been difficult to gauge lately, said a syndicate official.

One day oil prices move the market, another day it is subprime news, and another headlines from the financial sector are the driver, he said.

"It's tough to know if this is where we're going to be in the next couple of weeks," a trader said.

Volatility reflected the easier disposition of the market watchers during Tuesday's session. The VIX index dropped 2.92 to close the day at 21.39. The index is the standard yardstick of market volatility.

As a sector, emerging markets showed its resilience by tightening 5 basis points according to JP Morgan's EMBI+ index. The index was spotted with a spread of 201 bps. The EMBI+ measures how much extra yield investors will require to hold money in emerging markets debt.

Two talked in primary

None of the deals waiting in the pipeline were ready to price Tuesday, but two issuers took one step closer by releasing new price talk.

Country Garden issued talk for its $1.5 billion or higher notes (Ba1/BBB-/) due 2012 and 2017 in the 9% area for the five-year notes and the 9¾% area for the 10-year piece.

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

Proceeds from the deal will be used to refinance a loan from the Bank of China and to fund capital expenditures needed for existing and new projects.

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

Meanwhile, Brazil's Grupo Unialco announced talk of 10% for its $150 million intermediate bond (B2/B/) issue.

ABN Amro has the books for the deal.

The roadshow will be end on Wednesday.

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

Emerging Europe 'feels better'

Little changed in emerging Europe from Monday's rocky session, but "the market certainly feels better," said a trader.

"It's a little bit like what we saw after August," he said.

"We had a couple of weeks where the market was very sensitive," then we "shrugged off August," he said.

"There's no reason to believe it won't take a similar pattern," he added, so long as we see "a few sessions in a row without bad news."

"It still doesn't mean that we can't blow up, but you can't blow up everyday."

In Turkey, the military will likely go ahead with its incursion into Iraq, with the support of the United States, the New York Times reported.

The force used by the Turkish army will likely be smaller than what had been planned earlier, but the Turkish government does not feel enough has been done to mitigate the threat of attacks by the Kurdistan Workers Party (PKK) which uses northern Iraq as a safe haven.

On the domestic front in Turkey, the Ankara government claims it will allow greater freedom of expression for its citizens. A bill which will be reviewed by parliament may change the law prohibiting criticism of Turkish identity or the national institutions.

The Turkish sovereigns due 2030 tacked on about 0.7 with a strong lira. The credit was quoted at 158.5 bid, 158.75 offered.

The lira was seen up on the dollar at 1.729.

In Russia, OAO Gazprom has signed a deal with the Dutch oil firm Gasunie. The deal to support the creation of the Nord Stream pipeline across northern Europe was signed as president Vladimir Putin hosted Dutch premier Jan Peter Balkenende.

The Russian sovereign bonds due 2030 edged up slightly by 0.125 to 112.75 bid, 112.875 offered.

Elsewhere in emerging Europe, rumors were passed regarding a possible sovereign issue from Kazakhstan.

A trader said he had no further details about any possible issue, but "the market's been crying out for a sovereign from Kazakhstan for five years or more," he said.

"They're going to have to pay up," he said because the deal "will be hostage to wider conditions," but there may be a sizable group which wants to buy "dirt cheap Kazakhstan," he said.

Asia tighter on composed sentiment

Asia benefited from the market bounce as well as the climb in equities, but the most noticeable difference was in sentiment.

"The tone definitely turned around," said a trader.

In the Philippines the sovereign credits due 2030 tacked on 0.5 to close at 132.75 bid, 133.25 offered.

Indonesia's bonds were up about 0.375 to close at 104.625 bid, 105.125 offered.

In Pakistan, recently fired chief justice called for the Pakistani people to "rise up" in order to restore the constitution and the rule of law after a state of emergency was declared by president Pervez Musharraf last Saturday, reported the BBC.

Still the crackdown against pro-democracy demonstrators persisted despite the objections of many in the international community.

Pakistan's volatile bonds due 2017 were actually trading flat at 84 bid, 86 offered, but those numbers could be up to 4 points different in either direction on Wednesday, the trader said.

In corporates, the Philippines' Napocor stood out as it gained 0.375 to close at 102.125 bid, 102.5 offered.

Also, the issue from Hong Kong's Hutchison Whampoa Ltd. due 2033 was seen with a yield 5 bps tighter.

LatAm tighter, Venezuela leads rebound

Things were "relatively quiet" in emerging markets and Latin America, said Jefferies' Bauer-Rowe.

The calmer atmosphere allowed for some tightening as it seemed that Monday was not as bad as investors had thought.

Venezuela watched oil prices set a record of $97 per barrel and also watched its 9.25% bonds due 2027 add 0.8 after Monday's 2.60 loss. The credit was quoted at 106.8 bid, 107.25 offered.

Argentina's discount 8.28% government bonds posted a 0.75 gain as they inched back towards par. The bonds were spotted at 99 bid, 99.85 offered.

The Argentine CDS tighten approximately 13 bps.

Brazil's sovereigns due 2037 added 0.35 to trade at 114.85 bid, 115.20 offered.

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