Emerging markets weaker; Venezuela has $12 billion frozen in Netherlands; Bank of Moscow prices bond

By Aaron Hochman-Zimmerman

New York, Feb. 7 - Emerging markets was softer even as volumes returned to most of the sector.

In trading, some of the early gains were handed back in the afternoon, but most of the damage came when market watchers saw Venezuela fall over backwards as Exxon Mobil Corp. succeeded in having $12 billion of its assets frozen by a Dutch court.

Venezuela's bonds due 2027 plummeted 4 points.

The primary offered up one deal worth CHF 200 million from Russia's Bank of Moscow.

Outside of Asia, volumes were better than in recent sessions, but the focus was still with the major markets.

"Everyone's just watching the U.S. and ECB [European Central Bank] right now," a trader said.

Both equities and credits were pushed back on their heels with the news of the Treasury auction in the United States.

"We were dragged by that," said Enrique Alvarez, a Latin America debt strategist at think tank IDEAglobal, about the Treasury auction.

A rare nugget of positive news came from the major market financial sector as Deutsche Bank stayed slightly ahead of expectations with fourth-quarter profits of €1.4 billion, down 25% from the fourth quarter of 2006.

The bank's total profit for the year hit €8.7 billion, 5% higher than 2006, according to a press release.

Market volatility peaked early but trailed off later into the afternoon. A small late-day jump left the VIX index lower by 1.31 at 27.66. The index is a frequently watched gauge of market volatility.

Treasuries were cut at the knees after a disappointing auction, which let emerging markets wrap its spreads tighter by 13 basis points to a spread of 267 bps. The EMBI+ determines the amount of extra yield investors are willing to accept to keep money in emerging market debt.

Venezuela crunched, LatAm weaker

Volume was almost back to non-holiday levels in Latin America, but volatility was not far behind.

"We went higher then just totally crashed," IDEAglobal's Alvarez said.

Trading clawed its way back to just better than unchanged, he said.

"After [the] auction on the 10 years, you've had much higher rates come about," he said about widening spreads.

Meanwhile, a Dutch court sided with Exxon Mobil as it froze $12 billion of Venezuela's assets in the Netherlands and Dutch Antilles.

Venezuela was at odds with the U.S. oil giant over control of a development project, a buyside source said.

The Venezuelan 9.25% sovereigns due 2027 were smashed below par. The bonds were down 4 points to trade at 97.5 bid.

The five-year CDS was wider by 50 bps.

In the rest of Latin America, investor profit taking did the most damage to Brazil and Colombia on the long end of the curve, Alvarez said.

"Brazil is the most notorious," he said.

In Brazil, the tariff on imported wheat was temporarily lifted on countries outside of Mercosur as imports from Argentina have been insufficient, the Buenos Aires Herald reported.

"They do have some problems there," Alvarez said.

The Brazilian 11% government bonds due 2040 were lower by 0.7 to trade at 133.1 bid, 133.3 offered. The 7.125% bonds due 2037 were slashed by 1.7 to trade at 106.25 bid, 106.75 offered.

In Argentina, the 8.28% discount bonds due 2033 were pushed down by 1 point to 90 bid, 91.5 offered.

In Colombia the 7.375% bonds due 2037 were quoted at 105 bid, 106 offered.

Busy emerging Europe ends with rally

Volumes were up in emerging Europe as the sector managed to end the day with "a bit of a mini-rally," a trader said, after a day that was busy but "a bit up and down."

Ukraine did not benefit from the rally as OAO Gazprom again threatened to shrink down gas supplies to the Ukraine if Kiev does not settle its $1.5 billion debt.

Still, the country offered plans to begin working to establish a free trade zone with the European Union now that it has been accepted into the World Trade Organization.

"This will take 10 to 12 months, and then there will be intensified agreement with the U.S.," president Viktor Yushchenko said at the National Economy University on Wednesday, according to the Itar-Tass News Agency.

Yushchenko also indicated that free trade talks would begin with non-E.U. countries as well.

Also in the Ukraine, ministers have not yet reached any agreements to ease the parliamentary gridlock as opposition parties continue to hold up sessions in protest over the country's possible membership in NATO.

The Ukrainian government bonds due 2016 sank by 2.25 to 97.75 bid, 98.5 offered.

The five-year CDS spread widened by 15 bps to 286 bps.

In Russia, investors are preparing for the second India-Russia forum on trade, which will be held in Delhi on Feb. 12 and Feb. 13.

The 500 delegates at the conference will represent both governments as well as large corporate interests.

Special focus will be given to cooperation in the fields of energy, transportation, infrastructure and technology.

Elsewhere, Luxembourg prime minister and finance minister Jean-Claude Junker criticized Russia for restricting foreign investment while allowing its own government-supported funds a great deal of leeway in the E.U., a market source said.

Also, the election watchdog, the Organization for Security and Cooperation in Europe (OSCE), will boycott Russia's March 2 presidential elections.

The Russian sovereign bonds due 2030 dipped 0.25 to trade at 114.875 bid.

Turkey's banks will bolster its energy sector despite the waffling support of foreign investors, the Turkish Daily News reported.

Yapi Kredi Bank has offered $1.5 billion in long-term financing for seaports, as well as hydroelectric, wind and thermal power plants.

The Turkish government bonds due 2030 were seen lower by 0.375 to trade at 155.75 bid, 156 offered.

Meanwhile, in the Czech Republic investors are expecting a 25 bps rate hike from the central bank, a market source said.

The hike, intended to stave off inflation, may be the last of 2008, the source said.

The Czech koruna was seen trading at 17.776 to the dollar.

Bank of Moscow prices CHF 200 million

Along with the higher trading volumes, the primary market was open for business on Thursday, if only for one deal.

The Bank of Moscow (A3/BBB) priced a CHF 200 million three-year eurobond to yield 6.253%, according to a press release.

The amount of the offer was increased from CHF 150 million.

UBS was the bookrunner for the deal.

The proceeds from the sale will be used to finance the bank's mortgage program.

Asia weaker on New Year's volumes

In line with expectation, Asian trading was thin as much of the sector continues to celebrate the Lunar New Year, a market source said.

In the Philippines, foreign investment in the stock market was down by 19% or PHP 55.5 billion in 2007.

The losses were attributed to a severe sell-off in November and December of 2007, the Manila Times reported.

The Philippines' sovereign bonds due 2030 slipped 0.5 to trade at 131 bid, 131.5 offered.

In Indonesia, PT Daihatsu Astra Motor shipped its first auto exports to Japan.

The cars sent to world auto giant Daihatsu represent the first auto exports from Indonesia to a major market, according to a report in the Jakarta Post.

The company expects to ship 18,000 cars in 2008.

The Indonesian bonds due 2018 were unchanged at 103.25 bid. The bonds due 2017 were quoted at 103 bid.

Also, India's economy is predicted to grow by 8.7% during the fiscal year ending in March.

The slowdown would hold growth to its lowest level in three years.

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