Emerging markets trading thin; Chinese property hurting; Bicbanco to start roadshow

By Aaron Hochman-Zimmerman

New York, Jan. 16 - Prices in emerging markets were flat to mixed, but were still able to stay ahead of equities.

Volumes were paper thin with activity concentrated in a small number of names, much of it in CDS.

Despite the dismal headlines supplied by U.S. banks, there was a "slight better tone in credit over the last few days," a syndicate desk official said.

In trading, Argentina fell the farthest, losing 1 point from its discount bonds due 2033.

In CDS, "everything was a few bps wider," the syndicate official said.

The primary may have expected terms from Colombia's Empresa de Telecom de Bogota as it ended its roadshow, but the only news was provided by Brazil's Banco Industrial e Comercial which will begin a non-deal roadshow on Thursday.

Emerging markets have been able to outperform equities, sources said, but much of the story is told by the major markets.

Consumer prices were up by 4.1% in the United States during 2007, according to the Labor Department.

The consumer prices, when combined with the low December retail sales at 0.4% and year-over-year sales at 3.2%, add up to a recession, a market source said.

Recession talk leads many in the market feel that difficult times in the United States will cut worldwide demand for oil, which has caused crude to drop to $91 per barrel.

If the Federal Open Market Committee is in a state of panic by Jan. 30, the market may see a 75 basis point rate cut, a market source said.

The FOMC has not made such a drastic move since 1982.

Fed chairman Ben Bernanke, who has painted himself as an open communicator, is scheduled to speak on Thursday.

Volatility bounced early on, but made a steady climb in the afternoon to close up by 1.04 at 24.38, according to the VIX index. The index is an often used yardstick of market volatility.

Treasuries slid, which allowed emerging markets to tighten by 5 bps to a spread of 258 bps, according to JP Morgan's EMBI+ index. The EMBI+ is used to determine the amount of extra yield investors require to keep money in emerging markets debt.

Asia bounces, Chinese property tumbles

By the end of the session on Wednesday, Asian credits were "looking a bit better, for sure," a trader said.

"You've got a day when stocks haven't sold off significantly," he said, as credits bounced back with equities in the afternoon.

"We're back to the same issue ... the market is incredibly narrow," he said.

"Outside of CDS and an increasingly small number of CDS names and sovereign cash, there isn't a great deal trading," he said.

Simply on unfounded rumors of new issues from China's Greentown, "prices moved pretty dramatically," he said.

The company's existing 9% notes due 2013 were seen at 80.5 bid, 83 offered.

Investors are "very nervous about any new supply," he said.

"All of that sector has been beaten by new regulations in the Chinese market," a buysider said.

A new tax will be imposed on real estate developers if land is not developed within 12 months of purchase, he said.

"The government is trying to cool down this real estate bubble," he said. "That's why they're trading lower."

The tax may be up to 40% of the purchase price, he said, adding that the land can also be repossessed by the government.

"It breaks the debt-to-development model," he said, adding: "It's almost like going back to the internet bubble."

Elsewhere, the government of the Philippines has ordered a review of airline safety after the U.S. Federal Aviation Administration downgraded the country's safety rating.

A government official said the downgrade may cost the country billions in losses from trade and tourism, according to a report in the Manila Times.

The Philippine sovereigns due 2030 were seen flat for the second day in a row at 130.5 bid, 131 offered.

Indonesia's sovereign bonds due 2018 also held still from Tuesday's session at 101.875 bid, 102.375 offered.

In Pakistan, violence surged again as militants stormed and captured a paramilitary outpost in the embattled South Waziristan region.

Reports said there were eight soldiers killed and 25 missing.

The Pakistani bonds due 2017 were quoted at 83 bid, 85 offered.

So far in 2008 spreads in Asia and the United States have moved in unison, a market source said.

As the U.S. economy continues to be battered, fundamentals in Asia may offer room for spreads to tighten and outperform, the source said.

Prices mixed in slow LatAm

Spillover from the major markets turned down the volumes in Latin American trading.

"People are not willing to make big portfolio changes," a buysider said.

Conditions have left the buyside "frightened," a trader added.

Prices were mixed with some corporates taking on gains while the high-beta credits were bleeding.

Argentina led the losers by dropping 1 point from its 8.28% discount bonds due 2033. The issues were spotted at 95 bid, 96.35 offered.

Venezuela's 9.25% sovereigns due 2027 fell 0.45 to 102.875 bid, 103.4 offered.

Brazil's bonds due 2037 found a some room to grow and posted a 0.25 gain to trade at 112.25 bid, 112.9 offered.

In corporates, there "seems to be some appetite for [Vitro SA de CV] at current levels," the trader said.

The Mexican glass producer's 8.625% bonds due 2012 were quoted at 93 bid.

The 11.75% bonds due 2013 were quoted at 104.5 bid and the 9.125% bonds due 2017 were seen around 87.75 bid.

The session also saw "some action" in trading for the bonds due 2017 from Argentina's Transportadora de Gas del Sur. The bonds were spotted at 85 bid, 86 offered.

"Investors continue to shun [Corporacion Durango], which has fallen below 87 [bid]," the trader said about the Mexican paper producer.

Primary buyers hold off on ETB

Credits may have outperformed equities in trading on Wednesday, but sentiment did not support the completion of the deal offered by Empresa de Telecom de Bogota.

The telecom completed a roadshow for its 10-year local-currency offer through Deutsche Bank and Merrill Lynch.

Meanwhile, Banco Industrial e Comercial (Ba3/BB-/) has asked UBS to lead a roadshow through Europe and the United States.

The roadshow may be followed by a short- to intermediate-term dollar-denominated transaction.

The roadshow is scheduled for Jan. 17 in New York, Jan. 18 in London and Jan. 21 in Zurich and Geneva.

Bicbanco is a Sao Paulo, Brazil-based commercial and investment bank.

"It amazes me that people think deals like this can get done," a syndicate official said.

Investors still showed curiosity about the rumored offer of a $500 million sovereign from the Philippines, but the buzz is beginning to fade, a trader said.

"I would guess that they would wait, I don't think that need it right away," a syndicate official said, adding that they would likely wait in order to pay less of a premium than exacted for the recent Indonesian sovereigns.

Emerging Europe plays cautious

After a difficult Tuesday, trading in emerging Europe was hushed as investors dealt with more bank-related headline disappointments.

"It seems to be moving very slow," a buysider said about the market in general.

In Russia, the Russian Railways Co. was awarded the international tender offer to manage the Armenian Railways Co. for the next 30 years.

Russian Railways is obligated to invest $170 million in Armenian Railways, but up to $570 million is expected with $230 million coming in the next five years, the Itar-Tass News Agency reported.

Fitch has also recently affirmed Russian Railways' rating of BBB+.

Also, the government of Iran is expecting proposals for the development of oil resources from OAO Gazprom by the middle of March.

The Russian sovereign bonds due 2030 gained 0.25 to trade at 115.4 bid, 115.6 offered.

In Turkey, the government's sovereign bonds due 2030 were lower by only 0.1 as they traded around 156.9 bid, 157.125.

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