Emerging markets bounce lower; high betas up slightly; primary parade rolls on

By Aaron Hochman-Zimmerman

New York, Jan. 10 - Emerging markets followed equities in all directions during trading on Thursday.

The rollercoaster was powered by headlines from Bank of America and Countrywide along with remarks from Federal Reserve chairman Ben Bernanke, which led many to begin banking on a 50 basis point rate cut on Jan. 30.

"It's a full-fledged equity story," said Enrique Alvarez a Latin America debt strategist at think tank IDEAglobal.

Emerging markets' and Latin America's ability to avoid much of the trouble from the major markets was supported by Bernanke's speech, he said.

"It confirmed the premise for strong prices on the Latin American debt side," he said.

However, the prospect of a 50 bps reduction did not spur fresh buying, he said. Some expected "risk takers to scamper in, but that hasn't been the case."

Asked where the money is going if not to emerging markets, Alvarez said: "I would probably point you in the direction of gold and silver ... there or the dollar, crude oil."

Some money found its way to Latin America's high-betas.

Argentina led the winners in the day's trading by posting a gain of 0.6 to its discount bonds due 2033.

Volatility bounced throughout the day along with equities, but ended lower by 0.67 to close at 23.45, according to the VIX index. The index is a generally accepted gauge of market volatility.

As a sector, emerging markets tightened by 11 bps to a spread of 249 bps, according to JP Morgan's EMBI+ index. The EMBI+ determines the amount of extra yield investors require to keep money in emerging markets debt.

Hectic LatAm ends mixed to lower

Latin American trading began the day slowly, but tracked equities through a wild ride which included headlines and rumors about Bank of America and Countrywide.

Ben Bernanke's speech gave the market a slight lift on the hopes of a possible 50 bps rate cut at the Jan. 30 meeting, but even that bounce did not last.

"For Latin America it's created a lot of volatility on the U.S. side," said IDEAglobal's Alvarez.

"The ground has not trembled," he said.

"If anything you've hit very minor nibbling at risk," he said, although "it's nothing to write home about."

The high betas led the gains, but improvements were modest.

Argentina's 8.28% discount bonds due 2033 were the day's big movers with a gain of 0.6 to trade at 95.6 bid.

Venezuela's 9.25% government bonds due 2027 followed closely behind Argentina as they gained 0.5 to trade at approximately 104.25 bid.

Brazil was "a picture of the market," Alvarez said.

Its issues due 2025, 2034 and 2037 all fell about 0.25 while the 11% bonds due 2040 were quoted up 0.25 at 135.95 bid, 135.05 offered.

Colombia's retapped 7.375% bonds due 2017 were better by 0.3 at 109.65. However, the bonds due 2037 held unchanged at 109.75.

Purchasers are breaking even on the bonds due 2017, Alvarez said. Those who bought the bonds due 2037 "are above water by a tiny bit."

The market saw "Panama in a catch-up move," he said.

The drop in prices was a "signal of illiquidity" for its issues, he said.

The Panamanian bonds due 2027 were off by 1 point at 128.95 bid. The bonds due 2036 also fell by 1 point to 103.90 bid.

The winners in Latin America have been the equity markets.

Stocks in Mexico, Brazil and Chile were up 1% to 1.5%, Alvarez said.

Primary churns out more new issues

Despite market volatility courtesy of the major markets, issuers were undeterred as the Korea Development Bank priced $1 billion of new bonds and two others released talk.

Korea Development Bank (Aa3/A/A+) priced a $1 billion five-year bond with a spread of Treasuries plus 218 bps. The deal came at 99.857 with a coupon of 5.3% to yield 5 1/3%.

Deutsche Bank, Citigroup, Depfa Bank and HSBC had the books for the deal.

KDB is a Seoul-based state-run bank.

Indonesia (Ba3/BB-/BB-) talked its 10- and 30-year tranches worth up to $1 billion each at 6.95% and 7.75% respectively.

Barclays, HSBC and Lehman Brothers have been asked to bring the benchmark-sized sovereign.

The roadshow will be held until Friday.

Brazil's Usinas Siderurgicas de Minas Gerais SA released talk in the 7 3/8% area for its $400 million 10-year bullet bond (Baa3/BBB-/BBB-).

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

Usiminas is a Belo Horizonte, Brazil-based steel producer.

Colombia's Empresa de Telecom de Bogota (Ba1//BBB-) announced plans to offer a 10-year local-currency bond, according to a market source.

Deutsche Bank and Merrill Lynch have been mandated as bookrunners for the deal.

A roadshow is expected to be held in New York on Jan. 14, in Boston on Jan. 15 and in London on Jan. 16.

ETB attempted to sell a peso bond in October and earlier in July of 2007.

The company is a Bogota, Colombia-based telecommunications provider.

Elsewhere, Indonesia's state-run oil company PT Pertamina was reportedly considering a global bond issue, according to the Jakarta Post.

The majority of the firm's $400 million in loans will mature within three years.

Also, the company intends to purchase eight freight vessels for $400 million over the next three to four years, the report added.

For 2008, there is about $52 billion in corporate deals waiting to enter the capital markets and about $43.6 billion on the sovereign side, an emerging markets strategist said.

Asia whips around only to end weaker

"We opened with a very weak tone," a trader said of the Asian sector, attributing that to "a combination of general market weakness and the addition of the supply on top of it."

The market snapped back after lunch with the news from Bank of America and Countrywide only to fade again, the trader said.

"We're going out with a weaker tone," the trader said near the end of trading.

"The sovereign cash market got hit pretty hard on the back of supply," he added.

In the Philippines, exports fell during the month of November as the peso continued its climb, the National Statistics Office said.

Exports fell 2% to PHP 3.9 billion from PHP 4 billion during November of 2006. The drop came on the heels of 10.5% growth during October 2007 when exports fetched PHP 4.6 billion.

The peso was seen trading at 41.259 to the dollar.

The Filipino sovereigns due 2037 dropped 1 point to 89.25 bid, 89.75 offered.

Indonesia's government bonds due 2017 were quoted lower by 1 point at approximately 101 bid.

Pakistan's bonds due 2017 showed improvement to 83 bid, 85 offered.

"I don't know why," the trader said.

Violence persisted on Thursday as a bombing killed a reported 23 people in Lahore, Pakistan.

India's Tata Motors debuted the long anticipated two-cylinder 50 mile-per-gallon Nano which is intended for customers in the developing world at a price of $2,500, according to a press release.

Initial production is expected to hit 250,000 cars, but consumer demand may lead to greater output.

The automaker's debt did not show much reaction to the Nano's fanfare, a buysider said.

Also, in China the cabinet said it will act on the market to help stifle inflation and lower commodity prices.

Retail businesses will be subject to severe fines for raising prices of basic consumer goods.

During November most food prices grew approximately 18% while the price of pork grew by 50%, reported the BBC.

Emerging Europe ends busy day flat

Even before Fed chairman Ben Bernanke's speech, emerging Europe was busy watching prices waffle.

At the close of trading prices were generally unchanged.

In Turkey, the year-to-date current account deficit increased by 11.6% to $33 billion during the month of November, the Turkish Daily News reported.

But he central bank remains confident in the economy citing healthy foreign direct investment and cash reserves.

Turkey's recently reopened 6.75% bonds due 2018, which have stayed "pretty flat" recently, fell 0.35 to 103 bid, a buysider said.

The benchmark Turkish bonds due 2030 were spotted marginally tighter at 157 bid.

In Russia, the Kaliningrad free economic zone proved efficient, said first deputy prime minister Dmitry Medvedev, according to the Itar-Tass News Agency.

Medvedev said the free zone will eventually help Russia achieve its goal to integrate the Kaliningrad region with the all-Russian economic and cultural space and use the region to actively develop cooperation with the European Union, the agency reported.

The Russian sovereigns due 2030 added 0.1 to trade at approximately 114.95 bid, 115.1 offered.

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