Emerging markets trade mixed; Ecuador bonds soars on payment rumor; strong buying seen in Asia

By Aaron Hochman-Zimmerman

New York, Dec. 11 - Emerging markets ended mixed on Thursday as trading volumes and liquidity continued to slow into the end of the year.

Russia's currency was damaged again as the reserves were depleted, but Ecuador rallied as another spate of rumors, this time, exclaimed that Quito would make its payment on the 12% bonds due 2012 before next Monday.

Investors saw the bonds due 2012 add as much as 12 points during the session.

Meanwhile, Asia saw more buyers than sellers in major players Indonesia and the Philippines, a trader said.

Still, overall "it's kind of a quiet day," a strategist said during New York's afternoon, even for mid-December.

In the United States, stocks sank while volatility dropped off through the early afternoon but mounted a comeback and ended higher by just 0.05 at 55.78, according to the VIX index. The index is a common measure of market volatility.

As a category, emerging markets tightened by 7 basis points to a spread of 726 bps, according to JPMorgan's EMBI+ index. The EMBI+ estimates the amount of extra yield investors are willing to accept in order to hold assets in emerging market debt.

LatAm quiet, Ecuador spikes

Latin America went through another quiet and illiquid pre-holiday session, while Ecuador launched as much as 12 points "depending on who you ask," said Enrique Alvarez, a Latin America debt strategist at think tank IDEAglobal.

The price was difficult to gauge for the 12% bonds due 2012, which are in danger of default. The offered side saw levels near 45, while Wednesday's offer prices were closer to 33 or 25, he said.

"The bid side is the big unknown," he said, adding that one screen showed 31 while another showed as much as 41, a 12-point gain.

"There have been a lot of stories that they're going to make good on the payment," he said, citing a source in Quito.

Meanwhile, Argentina was "drifting lower," he said, expecting a negative start to 2009, especially as the peso continues to weaken.

Also, the country's senators voted to extend president Cristina Kirchner's "superpowers" for another year, according to the Buenos Aires Herald.

The extraordinary economic powers allow the administration to renegotiate contracts with private companies, expand social spending and raise fees for public services.

The peso was seen trading at 3.391 to the dollar.

The 8.28% Argentine discount bonds due 2033 dropped 0.5 point to 28 bid, 29 offered.

In Venezuela, bond levels were not able to take full advantage of the jump in oil prices as Wednesday's outlook downgrade from Standard & Poor's still hung over the credit.

The 9¼% bonds posted a modest gain of 1 point to 60 bid, 60.25 offered.

Elsewhere in the category, Brazil's 7 1/8% bonds due 2037 were quoted unchanged at 99.5 bid, 100.5 offered.

Asia holds momentum

Asian credit remained strong on Thursday after "the locals were buying overnight," a trader said.

"Longs pushed higher this morning," he said, although some of the gains were pared down by the end of the session.

"The cash market is actually pretty strong," he said.

"There were three buyers for every two sellers," he said, "maybe three to one."

"The cash market is going in Philippines and Indonesia," he said, as the strength built upon itself.

"That strength is bringing more buying," he said.

In the Philippines, after posting strong foreign direct investment inflows on Wednesday, the central bank announced $399 million of foreign portfolio investments in November.

The figure is $10 million more than the outflows shown in October.

The year through 2008 has now seen net outflows of $1.3 billion, compared to a net gain of $3.7 billion for the same period of 2007.

"Investors continued to be driven primarily by concerns over the weakening of major economies, particularly that of the U.S., despite temporary optimism over the results of the presidential elections there," said bank governor Amando Tetangco in a statement.

Despite the usual level of importance assigned to these numbers, investors on Wednesday mustered only lackluster enthusiasm for the data release, a trader said.

The Philippine sovereign bonds due 2030 tacked on 1.5 points to 109 bid, 112 offered.

In Indonesia, beginning in February the government will add a 7% tax to the cost of cigarettes in order to boost suffering revenues.

Rather than an excise tax, the government will now charge a value-added tax as well as a specific tax on production costs, the Jakarta Post reported.

The new tax program is expected to bring an additional 2.7 trillion rupiah to government coffers.

The Indonesian bonds due 2018 jumped 3 points to 78 bid, 81 offered.

Elsewhere, Pakistan remained difficult to pinpoint, but close to the 38 to 40 bid range, he said.

Emerging Europe holds, ruble lower

Emerging Europe held mixed on Thursday as Russia continued to let its currency slide.

The government in Moscow let the value of the ruble slip for the fifth time in 30 days.

A 30 kopeck depreciation eased the pressure on the budget versus oil prices even as light sweet crude jumped back up and traded as high as $49 per barrel.

The ruble was seen trading at 27.6890 to the dollar.

Meanwhile in Ukraine, prime minister Yulia Timoshenko and her political bloc have joined with president Viktor Yushchenko's Our Ukraine - People's Self-Defense Party and Vladimir Litvin's bloc to create a new parliamentary coalition dubbed the Coalition of National Development, Stability and Order, according to reports.

The coalition agreement includes broad reforms across the spectrum of public policy.

"The parliamentary and political crisis is over," Timoshenko said on Ukrainian television.

Also in Turkey, oil was discovered in both southeastern and western provinces, the Hurriyet Daily News reported.

The oil struck is of a similarly high quality to reserves in Saudi Arabia, but engineers are still investigating the sites.

South Africa cuts rates 50 bps

Slipping growth and easing inflation allowed South Africa's monetary policymakers to ease rates by 50 bps to 11.5%, according to a statement from the South African Reserve Bank.

"Since the previous meeting of the monetary policy committee, domestic inflation has moderated and is expected to decline further over the coming months," the bank's statement said.

"At the same time, the South African economy has been affected by the significant global slowdown that has intensified recently," the statement continued.

For traders, the corporate notes were unaffected by the rate cut, which was "pretty much what people expected," a strategist said.

The rand was seen trading at 9.993 to the dollar.

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