Emerging markets take light losses; oil producers hurt; Peru mixed amid rumor of new 30-year bonds

By Aaron Hochman-Zimmerman

New York, Oct. 16 - Emerging markets had another relatively successful day of light losses.

Thursday's flows were tempered as perplexed investors watched Wall Street schizophrenically sink, then save itself.

In the light trading, Peru's issues were largely improved, except for the 6.55% bonds due 2037.

The 37s would match closely with the proposed 30-year issue that has been the subject of rumor and ridicule during recent sessions.

One syndicate official speculated that pride may be pushing the Peruvian government to take upon itself the task of reopening the bond market.

Many investors were convinced the conditions would not support any kind of new issuance as volatility continued to set records.

Volatility soared past 81 at midday but finally fell by 1.64 to end at 67.61, according to the VIX index. The index is a frequently used yardstick of market volatility.

Quiet session for emerging Europe

Emerging Europe posted a quiet day on Thursday, which is the best the market can ask for, a trader said.

Hungary made most of the news.

Standard & Poor's put the country's credit on negative watch on Wednesday as "the CDS blew out a lot," the trader said.

"There was some positive news this morning," he said on Thursday as spreads were wider, but not as severely as Wednesday.

The European Central Bank offered a €5 billion loan to the Hungarian Central Bank to shore up the credit market.

The Hungarian five-year CDS was seen 120 bps wider since Wednesday at 470 bps bid.

In Turkey, journalists and free speech activists were discouraged by a proposal by the head of the Supreme Board of Radio and Television to allow the military to teach journalists how to cover stories involving terrorism.

Zahid Akman's proposal would have journalists instructed by the military at the National Security Academy, but many felt that such instruction would lead to censorship or self-censorship of the press, according to the Turkish Daily News.

Akman admitted that a certain agenda would be infused in the instruction.

"We are doing this to prevent coverage that does not help combat terrorism," he told reporters, the report said.

Timoshenko ready to patch coalition

In Ukraine, prime minister Yulia Timoshenko, whose break with president Viktor Yushchenko effectively split the government, agreed to any terms set by the president to resume their alliance and save the coalition.

"I am appealing to him," she said about Yushchenko, according to the RIA Novosti News Agency.

"Today I will accept any conditions to preserve the coalition and guarantee parliament's work," she said.

The cabinet reversed its decision and unanimously approved the release of $80 million for early parliamentary elections scheduled for Dec. 7, the report said.

However, Timoshenko told reporters that an International Monetary Fund loan of $3 billion to $14 billion is contingent on the postponement of the December elections.

Despite the recent cooperation, Yushchencko and Timoshenko are expected to compete for the presidency in 2010.

LatAm mixed, oil producers hit

Latin America had a mixed day, but the reason for the success remained largely a mystery.

"It's crazy," a syndicate official said.

Oil sank to new yearly lows of $68.50 per barrel, prompting oil producers to fall along with their chief export.

Venezuela's 9¼% bonds due 2027 dropped 2 points to 57 bid, 61 offered.

Mexico's 5 5/8% bonds due 2017 fell 1 point to 85 bid.

High-beta Argentina lost 2 points from its 8.28% discount bonds due 2033 and were seen at 37.75 bid, 40.25 offered.

Meanwhile, Brazil's highly traded 11% bonds due 2040 were lower by just 0.625 point to 113 bid, 113.5 offered.

Peru hints at 30-year

Still, the prime topic of conversation in LatAm was over Peru's continued bluster about a new 30-year bond.

"They already have a 30-year outstanding," a syndicate official said. "I just don't get it."

The rumors were not just garden-variety rumors, he said. "This was the finance minister talking."

However, for a new 30-year issue to hit the market in these conditions "the premium to pay is just too high," he said.

"We're talking this deal would have to come at a 10% handle, or low 10¼%, he said, "why?"

Peru's issues generally performed well except for the 6.55% bonds due 2037, which fell 5 points to 73 bid.

"That was in sympathy with the rumors," the official said about the loss for the 6.55% bonds.

Asia holds in

Asia clung tightly to its levels and saw minor successes, but the market did not have the strength to take full advantage of the Dow Jones Industrial Average late-day rally to end up 401 points.

Meanwhile in the Philippines, the government may miss its target collection from a value-added tax on oil due to falling prices and demand.

Collections at the end of July hit PHP 9.2 billion, well short of the anticipated PHP 18.6 billion, said finance undersecretary Gil Beltran, according to the Manila Times.

The country expected to collect PHP 45.7 in order to bolster social programs and subsidize other commodities.

"The PHP 18.6 billion windfall may be in danger after oil prices dropped significantly," Beltran said in the report.

The Philippine government bonds due 2030 added 1.5 points to 107.5 bid, 109 offered

In Indonesia, the recent tumble of sovereign paper has created a strong buying opportunity, PT Danaresk analyst Purbaya Yudhi Sadewa wrote in the Jakarta Post.

"Over the medium-term, the prospects of achieving good returns from investing in the Indonesian bond market are even better than before," he wrote.

Wild inflation of the rupiah drew investors away from Indonesian bonds.

However, foreign ownership of the sovereigns hit 19.43% in September, which is a sign of global confidence in the credit, Sadewa wrote.

The Indonesian government bonds due 2018 were quoted at 65.5 bid, 70.5 offered.

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