Emerging markets firmer; monolines, housing numbers lift market; primary in winter slumber

By Aaron Hochman-Zimmerman

New York, Feb. 25 - Emerging markets rode the wave that began in the morning with a better-than-expected housing sales report from the National Association of Realtors and finished with the S&P rating affirmation of the stumbling-giant monoline insurers.

Volumes were stronger and tone was optimistic, if only for the day.

"The market did very well today," a trader said.

When the monolines were affirmed, the market "was already up a decent amount on slightly better-than-expected housing numbers," a trader said.

"I think that we might see a rally for the next couple days until the next headline hits," another trader said.

"I've got no complaints... the market had a nice little rally," a syndicate desk official said.

Venezuela was the leader among the highly watched issues, even by only a few ticks, as it added 0.9 to its bonds due 2027.

Tone was healthier as the market returned from the weekend, but the primary is not likely to begin production just yet, the syndicate official said.

"We're going to need more than one day," he said.

Volatility bounced throughout the day but found its way lower by 1.03 to end at 23.03, according to the VIX index. The index is a frequently used gauge of market volatility.

Treasuries were pushed out of the way by oncoming investor confidence as emerging markets tightened by 11 bps to a spread of 266 bps. The EMBI+ determines the amount of extra yield investors will demand to keep assets in emerging market debt.

LatAm prices stronger, tone better

Prices in Latin America were better as the Dow Jones Industrial Average posted a 189-point improvement over Friday's close.

"It's definitely better ... better tone," a syndicate desk official said.

Although, "Colombia was down an inch because interest rates came up on Friday," he said.

The central bank raised its overnight lending rate to 9.75% from 9.5% which strengthened the peso, he said.

The Colombian bonds due 2017 were spotted at 109.125 bid, 109.5 offered.

The Colombian peso was seen trading at 1,892 to the dollar.

Argentina and Brazil intend to work jointly to build a nuclear reactor in order to deal with both countries' energy deficiencies.

Argentine president Cristina Kirchner met with Brazil president Luiz Inacio Lula da Silva in Buenos Aires to finalize the deal.

Two working nuclear facilities already exist in each country, and both governments are signatories of the Nuclear Non-Proliferation Treaty, the BBC reported.

The nuclear power facility is not likely to affect the bottom lines of Brazil's Petroleo Brasileiro SA or other local oil interests, the syndicate official said.

"Oil is still up at $100 a barrel," he said, and "I don't see it coming down any time soon."

Light sweet crude was seen trading at $99.28 per barrel.

The 8.28% Argentine discount bonds due 2033 added 0.8 to trade at 88.5 bid.

Brazil's 11% sovereign bonds due 2040 slid by 0.15 to 113.15 bid, 113.25 offered.

Venezuela's 9¼% government bonds due 2027 improved by 0.9 to 99.75 bid.

Meanwhile, Mexico's sovereigns due 2017 were quoted at 102.4 bid, 102.75 offered.

Also, as expected, the national assembly of Cuba named Raul Castro, the brother of long-time leader Fidel Castro, the new head of state.

Most expect the U.S. economic embargo against the island to continue.

Asia lifted by monolines, equities

"Today was the short covering rally everyone was hoping for," a trader said about Asian credits.

Prices and tone strengthened on better volumes as "the monolines appear to be maintaining their ratings," he said.

"Personally, I'm skeptical" about the rally sustaining itself for a great length of time, he said.

"I think it's healthy for the markets, but I don't think it's lasting," he added.

In the Philippines, the government plans to raise the amount of revenue it collects by eliminating some tax exemptions for investment projects, the board of investments said, according to the Manila Times.

The agency pared down the number of tax-exempt industries to six from 11.

The Philippine bonds due 2030 held flat at 129.75 bid.

Indonesia's market regulation agency will introduce what it calls a "shelf registration" plan to speed procedural requirements for bond and share issues, according to the Jakarta Post.

The program, which should take effect later in the year, has already been praised by many in the business sector, the report said.

The Indonesian government bonds due 2018 were better by 0.375 to trade at 104.125.

In Pakistan, after relatively peaceful elections, violence was resumed with the suicide bombing death of the army's chief surgeon, Lt. Gen. Mushtaq Baig.

The Pakistani sovereigns due 2017 were spotted at 87 bid.

Emerging Europe inches forward

Trading in emerging Europe was stronger as the equity markets led a collective sigh of relief due to the rating affirmation from Standard & Poor's.

In Turkey, foreign direct investment saw $22 billion of inflows in 2007, according to the undersecretariat of Treasury's web site.

Inflows for December hit $3.2 billion, the web site said.

Also, the Turkish army continued its attacks on Kurdistan Workers' Party (PKK) rebels in northern Iraq during the weekend. Dozens of Kurdish fighters were reported dead.

Elsewhere, leaders on Cyprus are close to reunifying the long-time half-Greek and half-Turk Mediterranean island.

The Turkish sovereign bonds due 2030 were up 0.375 to 152.625 bid.

Russia will continue its support of Serbia after the March 2 presidential elections, said deputy prime minister and likely election winner Dmitry Medvedev.

Russia and Serbia recently agreed to build the new South Stream gas pipeline through Serbia.

The Russian government bonds due 2030 were quoted unchanged at 113.375 bid.

Ukraine president Viktor Yushchenko expects a report on the progress of energy negotiations in Moscow from prime minister Yulia Timoshenko on Monday. The plan is also expected to include anti-inflation measures, the Itar-Tass News Agency reported.

Thursday Timoshenko met with Russian officials to discuss the $1.4 billion Gazprom claims it is owed by the Kiev government.

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