Emerging markets firmer; volumes shallow; Brazil's Banco BMG offers $100 million

By Aaron Hochman-Zimmerman

New York, March 5 - Emerging markets were slightly stronger on Wednesday, even as volumes dried up and economic data looked weak.

Monoline insurer Ambac Financial shook the equity boat with its $1 billion stock issuance in lieu of a cash infusion.

"They'll survive ... it'll keep their doors open for a while," a market source said about the issuance, which he called "dilutive."

"The market, if anything, took Ambac as a little bit of a relief," said Enrique Alvarez, a Latin America debt strategist at think tank IDEAglobal.

"At least it's on the table," he said.

Emerging markets trading saw the high-betas climbing.

Even while embroiled in the conflict over the FARC, Ecuador led the winners by adding 2.25 points to its bonds due 2030.

Meanwhile, the primary market reopened for business thanks to a $100 million offering from Brazil's Banco BMG SA.

Also, the oil cartel OPEC said it will likely not raise production, even as oil was seen trading at $104.50 per barrel.

Alvarez noted an "out and out runaway spiral in the commodities market," as large gains were made in every category.

Volatility bounced around on Wednesday to end lower by 0.92 at 24.60, according to the VIX index. The index is a commonly used gauge of market volatility.

Treasuries continued to move backwards as emerging markets tightened by 10 basis points to a spread of 274 bps. The EMBI+ determines the amount of extra yield investors are willing to accept to keep assets in emerging markets debt.

Accusations fly in FARC conflict

Venezuela moved more troops to Colombia's border as Ecuador asked the Organization of American States to condemn Colombia's cross-border raid against the FARC.

Colombia claims that the rebel group operating in the country has strong ties to both Venezuela and Ecuador.

President Hugo Chavez of Venezuela told the people of Colombia that his mobilized troops are only to halt the reach of the United States and not an action against them.

The United States has reiterated its support for Colombia and asked for stability in the region.

"I don't buy into a lot of this," IDEAglobal's Alvarez said, indicating that the conflict will likely remain mostly a war of words and political posturing.

Also, "[Chavez] may not have a lot of internal support," he said.

"The Organization of American States will probably produce some sort of admonition for Colombia," he said, adding: "Commerce is the real theme."

"It's sort of limited, but it's still moving," he said about trade between Venezuela and Colombia.

"Unless something really goes off, I think this is basically a sideshow," he said.

The 9¼% Venezuelan bonds due 2027 were up 0.5 point to 97.5 bid, 97.9 offered.

The 7 3/8% Colombian bonds due 2024 were up 0.85 point to 114.85 bid, 116 offered.

The 8% Ecuadorian bonds due 2030 soared by 2.25 points to 96.65 bid, 96.85 offered.

LatAm shakes off data, conflict

The light volumes in the market supported a positive day for Latin American credit despite disappointing data from the United States.

"The high-betas are up across the board," IDEAglobal's Alvarez said.

Argentina's unions and president Cristina Kirchner praised each other at a rally celebrating the 20-year anniversary of Hugo Moyano's leadership of the CGT union, the Buenos Aires Herald reported.

The unions and government have a history of distrust.

The 8.28% Argentine discount bonds due 2033 were better by 1.4 point at 89.5 bid, 89.9 offered.

Brazil's 7 1/8% bonds due 2037 were better by 0.7 point to 107.95 bid, 108.25 offered. The 11% Brazilian government bonds due 2040 were better by 0.15 point to 134.5 bid, 134.55 offered.

Emerging Europe looking brighter

Emerging Europe posted a strong day on higher volume as the market tone improved, a trader said.

"It all looks better," he said, but conceded "it doesn't necessarily mean anything at all."

"It's just that kind of market," he added about the market's new tendency to improve and deteriorate in spans of a few days.

"I've seen buyers in Russian corporates all day long," he said.

Russia's corporate sector, especially in telecoms and metals, saw broad appeal from investors on Wednesday.

Vimpelcom's issue due 2016 was up 0.5 point from Monday's price at 99.625 bid, 99.875 offered.

Also in Russia, reports are surfacing that the new president, Dmitry Medvedev, may be able to assert himself and determine his own course for Russia, without Vladimir Putin.

Both have recently made statements claiming the highest power in the country, but analysts feel Putin will have the advantage, at least in the beginning.

Later, Medvedev who is seen as more liberal than Putin, may be able to build enough influence to step into his mentor's limelight.

The Russian sovereign bonds due 2030 added 0.2 point to 114.875 bid, 115 offered.

Turkey's banks celebrated profits of 40.8 million lira in 2007, the Turkish Daily News reported.

Since the Turkish banking crisis of 2001, the banks have rebounded to post a profit of $35 billion between 2002 and 2007.

The report credits political stability, including positive steps toward membership in the European Union, as well as adherence to International Monetary Fund programs, with the success.

The Turkish sovereigns due 2030 jumped 1.125 points to 152.125 bid, 152.25 offered.

Progress in Russia-Ukraine gas crisis

Russia's Gazprom and Ukraine's Naftogaz Ukrainy ended the three-day gas crises as supplies returned in full to the Ukraine.

Ukraine president Viktor Yushchenko asked that talks continue to work through future problems and to resolve the issue of unpaid debt. Russia has accused Ukraine of not paying for fuel, while the Ukrainians have claimed Russia does not pay for the transport of gas to the rest of Europe.

The Ukraine had threatened to siphon fuel shipments to Western Europe if the supply reduction persisted.

Asia thins out

Asian prices improved, but only as they were given the opportunity by very light volumes.

"Flows were generally on the constructive side, but it's still very, very thin," a trader said.

In the Philippines, consumer prices rose 5.4% in February, up from 4.9% in January, according to the national statistics office.

High commodity prices were to blame for the 16-month high figures, according to the Manila Times.

The central bank target range for February was between 4.8% and 5.5%.

The Philippine government bonds due 2030 were off by 0.375 point to 129.75 bid, 130.25 offered.

In response to record oil prices, Indonesia has doubled its coal production in the last five years to 210 million tons from 113 million tons, the Jakarta Post reported.

Almost 75% of its coal is for export.

Although it is the world's largest coal exporter, the state-run power company PT PLN announced a coal shortage in the Java-Bali area, the report said.

The area's generators are operating at 4.7% below capacity.

The Indonesian sovereigns due 2018 were up by just 0.125 point and were quoted at 104.75 bid, 105.25 offered.

In Pakistan, slain former prime minister Benazir Bhutto's widower, Asif Ali Zardari, had five corruption charges against him dropped by a Pakistani court, according to the BBC.

His assets were also unfrozen.

Zardari plays a large roll in the Pakistan People's Party (PPP) but has refused to run for prime minister.

The Pakistani bonds due 2017 slipped 1 point to 86 bid, 88 offered.

In China, the government plans to focus on rising inflation during 1008, premier Wen Jiabao said to parliament.

Inflation rose to 7.1% in January, and many are worried that higher food and consumer prices may spark popular unrest.

Banco BMG offers $100 million

After a drought of new issues, the raindrops returned courtesy of Banco BMG SA (Ba1). The issuer offered $100 million two-year notes at 7¼% on Wednesday but will drop the offer to 7 1/8% on Thursday.

The notes are expected with a final yield of 7%.

BCP Securities will act as the bookrunner for the deal.

Proceeds will be used for general corporate purposes.

Banco BMG is a Belo Horizonte, Brazil-based retail and commercial bank.

"If we get a few more days like this, the specter of new issuance will again loom large," a trader said earlier in the day.

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