Emerging markets hover above equities; volume thin; Jordan files request for proposals

By Aaron Hochman-Zimmerman

New York, Feb. 21 - Emerging market prices were flat to slightly improved, even as equities plummeted on dwindling manufacturing numbers from the Federal Reserve Bank in Philadelphia.

Volumes were light as the risk takers were sent to the back of the line by the sour market data.

"There's not a whole lot going on; it's kind of a standstill," a syndicate official said.

In trading, the still unrealized possibility of a rating upgrade brought good news to Brazil, which saw its bonds due 2037 tack on 1.75.

The primary was long on talk and short of action, yet sovereign Jordan and the Russian corporate Vimpelcom were rumored to have new issues brewing.

Volatility made a steady push upward as it closed up 0.72 at 25.12, according to the VIX index. The index is a standard measure of market volatility.

As Treasuries went running on the poor manufacturing numbers from the Fed, emerging markets widened by 11 basis points to a spread of 277 bps, according to JPMorgan's EMBI+ index. The EMBI+ estimates the amount of extra yield investors will demand to hold assets in emerging markets debt.

LatAm improves on quiet day

Latin American trading made slight progress, even as volume was held in check.

"It's very quiet," a syndicate official said, searching for anything significant.

Venezuela's government has paid out $1.8 billion to France's Total, Norway's Statoil and Italy's ENI, which were subject to nationalization.

The payment comes after courts in the United States, United Kingdom and the Netherlands froze $12 billion in Venezuelan assets after it nationalized holdings of Exxon Mobil Corp.

The 9¼% Venezuelan sovereigns fell 0.85 to 98.65 bid.

Light sweet crude was seen trading lower at $97.54 per barrel.

Brazil announced the breakdown of its $500 million bond buyback for November and December.

The buyback may only be in its initial phase, a market source said.

"That put some kind of floor on external debt," a buyside source said.

The rumor that Brazil would receive a rating upgrade soon "brought a little bit of a bid to its external debt," he said, but added that "it may happen in '08, but nothing's imminent."

Also, the state-run oil firm Petroleo Brasileiro SA was the victim of corporate espionage, according to police.

The computer hardware, which was stolen, is believed to contain sensitive information.

The 11% Brazilian sovereign bonds added 0.55 to trade at 132.6 bid. The 7 1/8% bonds due 2037 were better by 1.75 to trade at 106.5 bid.

In Ecuador, rumors of a restructuring were translated into speculation of a potential buyback for the 12s, which drove up prices.

The issue lost steam when the government announced there would be no restructuring, but investors were still left with recent positive fiscal numbers, a buyside source said.

The Ecuadorian 12% government bonds due 2012 were seen higher by 1 point at 97.5 bid, 98.5 offered.

Argentina's 8.28% discount bonds due 2033 gained 0.85 to trade at 88.1.

However there was active trading in the bonds issued by Companhia Vale do Rio Doce's Vale Overseas unit. The debt was having widened out substantially on heavy trading volume as investors pondered the effects on its capital structure of having to borrow large sums of money to fund a pending acquisition.

Vale's 6.875% bonds due 2036 were big losers on the day, and in heavy trading to boot.

A market source saw those bonds having widened out more than 30 bps to 289 bps over - the equivalent of a 3¼ point loss in the bonds' dollar price, down to the 93.5 level.

The Brazilian metals mining concern, currently in takeover talks with Xstrata, an Anglo-Swiss miner, was reported to have informally raised its offer price, raising the specter among fixed-income investors that the company may have to load up on leverage to get a deal done.

Emerging Europe stagnates

Prices in emerging Europe's credits were mixed as equities waffled in the morning only to fall lower into the afternoon.

Improved tone on Wednesday gave way to light volumes as negative data came out of the United States Thursday.

In Russia, the state oil company OAO Gazprom signed an agreement with France's Total and Norway's StatoilHydro to create the Shtokman Development AG, in order to jointly develop the Shtokman gas condensate field in Siberia, according to a Gazprom press release.

Gazprom will hold a 51% stake in the new company, Total will hold 25% and StatoilHydro will hold 24%.

"This strategic partnership of our companies brings together long experience, vast resources and advanced technologies which are fundamental to the success of this unique project, which will guarantee reliable and long-term gas supplies for European consumers," Gazprom chief executive officer Alexei Miller said.

The Russian sovereigns due 2030 added 0.375 to trade at 113.125 bid, 113.25 offered.

Ukraine's parliament did not hold a session Wednesday as the legislators have been deadlocked since Jan. 18 over the country's possible membership in NATO.

Opposition leader and former prime minister Viktor Yanukovich, who is against joining the alliance, is pressing for a national referendum on the issue, reported the Itar-Tass News Agency.

The Ukrainian bonds due 2016 were lower by 0.6 to 99.05 bid, 99.55 offered.

In Turkey, U.S. firms expressed optimism over the future business climate in Turkey, said the American Business Forum in Turkey 2008 investment survey, according to the Turkish Daily News.

About 70% of U.S. companies involved in Turkey have plans to add to their investments, the report said, despite a need for reforms in the fields of bureaucracy, exchange rates, taxation and intellectual property laws.

The Turkish government bonds due 2030 fell just 0.125 to trade at 152.625 bid, 153.125 offered.

Asia floats on shallow volume

Prices in Asia crept northward on a near-silent day of trading.

An equity dive brought on by a disappointing data release kept the trading volume light.

In the Philippines, the tone is bullish regarding the second-quarter outlook, according to a survey conducted by the central bank.

"All sectors continued to post positive indices, indicating that the number of firms that are confident about business conditions in the first quarter outnumber those that have a negative view," the bank said in a press release.

The construction and services sectors recorded the highest confidence figures at 42.4% and 42.1%, respectively.

The Philippine bonds due 2030 added on 0.25 to trade at 130 bid, 130.5 offered.

In Indonesia, the Chamber of Commerce and Industry vice chairman Chris Kanter criticized the government's value-added tax on electricity use above 1,300 watts as empty politics.

The government is trying to shield itself from criticism rather than taking the necessary step of raising usage prices outright, he said, according to the Jakarta Post.

The Indonesian bonds due 2018 were better by 0.5 at 103.75 bid, 104.75 offered.

Pakistan president Pervez Musharraf could potentially be forced from office if a coalition government is formed by the two leading parties in Monday's elections.

The leaders of both the Pakistan People's and the Party Pakistan Muslim League met on Thursday.

Musharraf has expressed willingness to work with the winning parties toward a stronger democracy.

The Pakistani sovereigns due 2017 improved by 0.25 to 86.75 bid, 88 offered.

Primary prints only rumors

Actual new issues have been less common in the primary than the rumors, which were again thrown around the market on Thursday.

The Kingdom of Jordan (Ba2/BB/) announced that is has issued a request for proposals.

The bond issue is expected in the first quarter of 2008.

"People are pitching them ideas," a syndicate desk official said.

The talk of sovereigns from Jordan followed closely whispers of a $1.5 billion deal from Russia's Vimpelcom, which may arrive in the second quarter.

A $2 billion deal from Russia's OAO Gazprom was discussed earlier in the week.

"It seems like our market is kind of paralyzed," the syndicate official said.

"It's kind of like the chicken and the egg," he said, indicating that no issuers will print until another issuer has printed already.

"At some point somebody just has got to hit the bid," he said.

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