EM continues up; Venezuela up before referendum; two slip through pipeline

By Aaron Hochman-Zimmerman

New York, Nov. 30 - Emerging markets finished Friday on the upside to cap off a relatively strong week for the sector.

Without any seriously negative headlines, spreads were able to tighten throughout the week.

Market watchers noted the improved tone, but were wary of declare the upswing a full recovery.

Emerging markets funds posted outflows to the tune of $250 million during the week ending on Nov. 28, according to EPFR Global.

In trading, the high-betas were on top of the rising tides with Venezuela adding 1.2 to its 9.25% sovereigns due 2027.

Even as many investors had written off the primary for the rest of the year, two issuers found a way to push deals through the pipeline.

Latin American deals from Brazil's Banco Cruzeiro do Sul SA and Peru's Energia del Sur SA priced late on Friday.

Headlines finally tended toward the optimistic side for the market as both credits and equities reacted well to a speech by Federal Reserve Board chairman Ben Bernanke seemed to indicate the Fed would again cut rates during its Dec. 11 meeting.

Also at a meeting beginning on Dec. 3 in Abu Dhabi, the Organization of Petroleum Exporting Countries appears to be leaning towards increasing production, according to a BBC report.

Oil has already been seen backing off from its record highs at $99 per barrel.

Light sweet crude was seen trading at $89 per barrel.

"Oil is pretty low, isn't it?" a trader said.

Volatility was also lower on the day. The VIX index dropped by 1.10 to close at 22.87. The index is the commonly used gauge of market volatility.

Emerging markets tightened as a sector by 8 basis points to a spread of 248 bps, according to JP Morgan's EMBI+ index. The EMBI+ calculates the amount of extra yield investors will require to keep money in emerging markets debt.

Emerging Europe inches higher

Even as equities were climbing after chairman Bernanke's speech Thursday night, bonds in emerging Europe were trading on light volumes.

"They don't want to do anything," said a trader about investors around the sector.

"But the prices are everywhere," he said.

In Russia, protests continued as the country headed into the weekend campaigning freeze before Sunday's parliamentary elections. The opposition was persistent despite difficulties placed in the path of dissention by the Kremlin.

Opposition leader and chess master Garry Kasparov encouraged Russians not to vote for president Vladimir Putin's United Russia party.

"This regime is entering a very dangerous phase that is turning it into a dictatorship," Kasparov told reporters shortly after his release from prison.

"Fear is the only chance this regime has to survive," he added.

Constitutionally, Putin's last term as president expires in March, but he is widely expected to continue on in government from a very influential position.

He has decided to lead United Russia into the Duma elections, which almost ensures he will hold a seat in the parliament.

In trading Friday, the Russian sovereigns due 2030 edged higher by 0.15 to 113.6 bid, 113.9 offered.

Elsewhere, the Ukraine will have to pay more for Russian oil in 2008, according to the Itar-Tass News Agency.

Talks will begin shortly to determine the final amount of the increase.

The parties of the Ukraine's pro-Western Orange revolution led by president Viktor Yushchenko and prospective prime minister Yulia Tymoshenko, have reached an agreement to form a coalition government.

Meanwhile, the five African nations which form the East African Community signed an agreement which will give the European Union expanded access to their markets.

Over a period of 25 years, Burundi, Kenya, Rwanda, Tanzania and Uganda will be more available to European companies.

South Africa's miners demanding improved safety conditions threatened a one-day strike on which would take place on Tuesday.

A miner was killed on the job at Gold Field's Driefontein mine last Saturday and another killed at the Gold Field's Kloof mine on Friday, according to the BBC.

A strike is expected to affect international gold producers such as AngloGold, Ashanti, Gold Field's and Harmony.

"It's not a good thing, but it is kind of a fact of life," said a trader with a specialty in South Africa.

"We'll have to see where it goes," the trader said.

Also, Turkey's benchmark government bonds due 2030 climbed 0.625 to trade around 157.75 bid, 158 offered.

Asia edges up on low volume

In Asia, as E.U. officials are preparing to hold trade talks with India in Delhi, credits which were "trading better with everything else ... dropped off pretty sharply" in volume, according to a trader.

"There's been some pretty good moves," he said.

The action in the commodity market was "as a whole, a wash," he said.

Oil producers have benefited from the high prices, and importers have been hurt.

"It's not particularly significant for Asia," he said, although "sovereign cash has squeezed higher," he added.

In the Philippines, arrest warrants have been issued for some and others have been taken into custody in the aftermath of Thursday's abortive coup in Manila.

Rebel leaders including a former senator and an army general offered their surrender to government troops after they stormed the hotel the rebels had occupied.

A curfew was imposed after the incident, but has since been lifted.

The Filipino bonds due 2030 added 0.75 to trade around 133 bid, 133.5 offered.

Over the week the Philippines's five-year CDS tightened by about 40 bps.

"Indonesia, same thing," the trader said.

Indonesia's sovereign bonds due 2017 also added 0.75 to trade at approximately 103.75 bid, 104.5 offered.

In Pakistan, while Pervez Musharraf's civilian presidency was only one day old, opposition leader and former prime minister Benazir Bhutto published her Pakistani People's Party (PPP) manifesto for the elections expected on Jan. 8.

The manifesto demands employment, education, energy, environment and equality, she said.

Currently her party intends to participate in the upcoming elections, but has made no commitments to further elections.

Former prime minister Nawaz Sharif, who was deposed by Musharraf in 1999, will boycott the elections even though the state of emergency is scheduled to be lifted on Dec. 16.

The Pakistani government bonds due 2017 were seen "a bit weaker," the trader said.

"It's not really trading very much, just reacting to headlines," he said.

High-betas strong in LatAm rebound

A quiet Friday ended a week that was at least "better than last week," a buyside source said.

When asked if the recovery could be sustained, a trader said: "I hope so, but I just don't know."

Argentina's 8.28% discount bonds due 2033 were up 1 point to trade at a bid of 97.25.

Ahead of a referendum vote in Venezuela on Sunday, protestors packed the streets of Caracas to voice their opposition to the proposal which would end term limits for president Hugo Chavez and give him greater influence over the central bank and oil production.

Before the vote, even some Chavez allies left his camp as they felt he has grown beyond the principles of his 1999 revolution.

No election observers from either the European Union or the Organization of American States were invited to monitor the outcome, the New York Times reported.

Venezuela's 9.25% bonds due 2027 jumped 1.2 to a bid of 98.7.

Primary squeezes in two before weekend

"I honestly think that it's over; it's December already," a trader said about the primary early in the day on Friday.

"I'd be very surprised if anything happens before year-end," another trader said, but two deals were forced through the pipeline late in the day.

Full terms were not available on a deal from Banco Cruzeiro do Sul SA, but it priced a reopening of its 7½% notes (Ba1) at 99.45 to yield 7¾%.

BCP Securities had the books for the three-year deal.

Proceeds will be used to offer payroll loans.

The bank is a Sao Paulo, Brazil-based commercial and retail lender.

Also, Peru's Energia del Sur SA (Enersur) priced a 120 million Peruvian sol 10-year note (AAA local rating) with a coupon of 6.8125%.

Citigroup acted as bookrunner for the deal which comes from a $400 million program.

Enersur is a Lima, Peru-based electricity provider.

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