Emerging markets prices flat; spreads wider with Treasuries; pipeline tested

By Aaron Hochman-Zimmerman

New York, Jan. 15 - Emerging markets investors pulled chips off the table as equities plummeted on news of big losses from Citigroup.

In trading, prices held firm on shallow volumes.

"There's not a lot of change to the big picture; it's all pretty weak," a trader said.

However, he added, "maybe we can get a little too gloomy and doomy.

"We're overdue for some consolidation and a feel-good rally," he said.

"Bernanke has the moral thumbs up to go ahead and cut rates as he wishes," he added about the Federal Open Market Committee meeting on Jan. 30.

In the primary, investors are watching to see how the market reacts to Colombia's Empresa de Telecom de Bogota, which ends the roadshow for its 10-year local-currency bonds on Wednesday.

The broader market tone continued to be in the hands of news from the major markets.

Citigroup put the day's biggest drag on the market by announcing a $9.8 billion net loss during the last quarter of 2007 as a result of exposure to subprime loans, according to a press release.

The United States' largest bank will take a writedown of $22.2 billion and may lay off up to 4,000 employees.

Singapore's government investment arm GIC will invest $6.8 billion in the troubled bank.

Merrill Lynch also accepted $6.6 billion from overseas investors in the Middle East and Asia, primarily from Korean Investment Corp., Kuwait Investment Authority and Mizuho Corporate Bank, the company said in a press release.

Despite a 2% drop in the major equity indexes, volatility climbed only 0.44 to close at 23.34, according the VIX index. The index is a commonly used gauge of market volatility.

Prices in emerging markets were largely flat but the Treasury rally sent spreads wider. As a whole, spreads came out by 11 basis points to a spread of 268 bps, according to JP Morgan's EMBI+ index. The EMBI+ determines the amount of extra yield investors are willing to accept to hold money in emerging markets debt.

Emerging Europe scared off by headlines

Traders in emerging Europe hid from the headlines and kept volumes light on Tuesday.

Sour news from Citigroup and Merrill Lynch did the most to sideline investors.

"News is bad, Treasuries are strong, data is weak," a trader said.

Turkey is making preparations for a public tender for construction of a nuclear power plant, reported the Turkish Daily News.

The energy ministry intends to make Turkey a regional hub of uranium enrichment, the report said.

The center may also be used by U.S. interests.

The Turkish bonds due 2030 were quoted unchanged at 157 bid.

Russia's government accounts frozen by French authorities over payment demanded by a Swiss firm, Noga, will be returned in accordance with international law, foreign minister Sergei Lavrov told reporters at a press conference.

Noga has filed several claims against the Kremlin since 1993 over missed payments related to barter deals for Russian oil.

The Russian bonds due 2030 were up 0.2 to trade at approximately 115.125 bid.

Conditions test issuers

Issuers which are closing roadshows in the coming days are not meeting favorable market conditions for their offers.

"It's interesting times out there," a syndicate desk official said.

Empresa de Telecom de Bogota ends its roadshow on Wednesday for a 10-year local-currency offering via Deutsche Bank and Merrill Lynch.

"The reception on the roadshow has been very good," said a source familiar with the deal.

But he admitted: "The market's just been whipping around on a day-to-day basis."

Still, "this is a very different type of product," he said.

Elsewhere, the Dominican Republic's Grupo M Holding SA begins a roadshow for its inaugural dollar-denominated offer on Wednesday.

The roadshow will be held in Hong Kong on Jan. 16, in Singapore on Jan. 17, in Switzerland on Jan. 18, in London on Jan. 21, in New York on Jan. 22 and Boston on Jan. 23.

"I'd be shocked if these guys come," said a portfolio manager.

"If a sovereign wanted to come, they could maybe get something to come," he said.

However, the portfolio manager was encouraged by the day's successes in the U.S. high yield market, particularly the interest in an issue from Harrah's Entertainment Inc.

Harrah's is began a roadshow on Tuesday for a to-be-determined portion of its upsized $5.275 billion of senior unsecured cash-pay notes.

The tranche is a part of the overall $6.775 billion of proposed bond financing which was upsized on Monday from $6.025 billion.

Spreads widen, prices hold in LatAm

Latin American spreads widened out as Treasuries rallied and traders were careful not to pick up new risk.

Across the board, spreads were wider by 10 bps to 15 bps, a syndicate desk official said.

In price terms, even the high-beta credits were only slightly changed.

Argentina's 8.28% discount bonds due 2033 traded flat at 96 bid, 96.5 offered.

Venezuela's 9.25% sovereign bonds due 2027 led the way down with a loss of only 0.5. The issue was quoted at 103.15 bid, 103.6 offered.

Brazil's 11% bonds posted a gain of 0.25 to trade at approximately 135.4 bid, 135.5 offered.

The 7.125% Brazilian bonds due 2037 were seen at 112 bid, 112.5 offered.

The real also dropped by approximately 1%, to 1.755 against the dollar.

One week after pricing, Mexico's bonds due 2040 are 0.55 lower than their new issue price.

The bonds were quoted at 99.35 bid, 99.9 offered.

Colombia's retapped bonds due 2017 and 2037 have fallen approximately 0.75 and 0.5 respectively in one week.

On Tuesday the issue due 2017 was seen at 109.25 bid, 109.25 offered. The issue due 2037 was seen at 109 bid, 109.65 offered.

Poor tone quiets Asia

Asian bond prices were frozen as equities sank and headlines muddied the waters of market sentiment.

In the Philippines, inflows of remittances from overseas workers increased by 3.8% to $1.2 billion during the month of November, according to the central bank's website.

For the first 11 months, total remittances stands at $13 billion, higher than the same period of 2006 by 14%.

Also, the country's bank loans expanded by 7% year-over-year in November, compared to 4.4% during November of 2006.

The Filipino bonds due 2030 held flat at 130.5 bid.

Indonesia's state-run power company Perusahaan Listrik Negara announced that is has secured loans worth $1.9 billion for the construction of five coal plants, according to the Jakarta Post.

The $1.9 billion represents approximately 40% of the total cost of the plants under the government's 10,000 megawatt program.

The plants costing a total of $4.8 billion should be operational in 2009.

The Indonesian sovereigns due 2018 were spotted at 101.875 bid, 102.125 offered.

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