Emerging markets spreads wrap tighter; Stocks soar on cash injection; AmBank offers S$425 million

By Aaron Hochman-Zimmerman

New York, March 11 - Emerging markets prices were better and spreads came in tighter as equities screamed skyward on a $200 billion liquidity injection from the U.S. Federal Reserve.

"Everything is playing to a better external tone," said Enrique Alvarez, a Latin America debt strategist at think tank IDEAglobal.

Although, "it's using a fire extinguisher to put out a forest fire," he said.

"Yes, it'll calm the nerves for a few days and people will have a fresh look," he said.

"It needs to be the thin end of the wedge," a trader agreed, "If that's it, it's meaningless," he said.

The rally may not last past Friday, another trader cautioned.

"They'll be in a hurry to crystallize some gains here," he said, then "I'm sure that we'll see people looking to get back into taking protection."

Despite the success, volumes were still light.

"There are about half as many prices as there normally is," a trader said, "There's just nothing out there."

The trading that did occur put Argentina's discount bonds due 2033 in front for the day as they added 1.5 points.

In the primary market, Malaysia's AmBank Bhd. tried the local-currency market with a S$425 million deal.

Volatility plummeted on the 416-point rally in the Dow Jones Industrial Average while the VIX index dropped 3.02 to end at 26.36. The index is a common yardstick of market volatility.

Treasuries were thrown back by the cash infusion, which wrapped emerging markets tighter by 18 basis points to a spread of 288 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.

Emerging Europe sails on liquidity injection

Emerging Europe was "certainly brighter, but we're used to the doom and gloom now," a trader said as prices reacted well to the liquidity injection from the G-10 banks.

"It's a move in the right direction," he said about the cash infusion.

Volumes and liquidity remained low and were "almost as bad as it was yesterday," he said on Tuesday as many were out of the office for the opening day of London's Cheltenham horseracing festival.

Turkey was discouraged by the International Monetary Fund from creating a non-disclosed fund for infrastructure repair, according to the Turkish Daily News.

The government has recently taken steps toward budgetary transparency. Since 2001, it has closed 69 similar funds under agreements with the IMF.

The Turkish sovereign bonds due 2030 jumped 1.25 points to 150.25 bid, 150.5 offered.

Elsewhere in emerging Europe, Ukraine's Naftogaz Ukrainy and Russia's OAO Gazprom will resume talks on Wednesday, according to the Itar-Tass News Agency.

Teams from each national energy firm hope to reach an agreement for at least a 12-month contract.

Meanwhile, Russia's sovereigns were better as S&P moved its outlook to positive from stable, the trader said, although, "the corps really haven't budged."

The Russian sovereigns due 2030 were up just 0.125 point to 114.75 bid, 114.875 offered.

Russian foresight sees 2020

In Russia, president Vladimir Putin, president-elect Dmitry Medvedev and the Duma leadership met at the Kremlin to chart a new course for the Russian economy until 2020, according to the Itar-Tass News Agency.

Putin spoke of the economy's "extreme ineffectiveness" and called on the country to create equal economic opportunity for Russians, inspire innovation and support efficiency.

Medvedev focused Putin's vision by proposing the country concentrate on "the four 'I's: institutes, infrastructure, innovations and investments."

Itar-Tass reported Medvedev's seven-point plan to improve the four I's:

• One - eliminate legal nihilism;

• Two - drastically cut down administrative barriers;

• Three - beat down the tax burden to stimulate innovations and private investment in human resources;

• Four - construction of a powerful and independent financial system, which should become a centerpiece of financial stability in the world and allow the conversion of the ruble into a regional reserve currency;

• Five - updating of transportation and energy infrastructure as well as creation of new telecom infrastructure;

• Six - form the foundations of a national innovation system;

• Seven - implement a program for social development in the country.

'Crazy' Asia wraps tighter

Asian spreads came reeling in on the news of the liquidity injection from the world's central banks, a trader said.

"Today is much more significant than any cut in Fed rates," he said on Tuesday.

"It's crazy actually," he said as trading has "taken out all of the panic widening of the last two to three sessions on virtually zero volume."

Asia's investment-grade index, which traded at 217 bps in the Asian session, wound down 33 bps to 184 bps, the trader said.

"That takes it back to Thursday's levels," he said, adding that the high-yield index likely came in 50 bps from its wide at 640 bps.

In the Philippines, January's exports fell to $4.2 billion from $4.4 billion in December, according to the national statistics office. Year-on-year growth in exports was 6.4% in January compared to 21.4% in December.

Electronic goods remained the country's largest export sector by bringing in 61.5% of the country's export revenue, followed by textiles and coconut oil.

Total receipts from the country's top 10 export products reached $3.3 billion, or 79.8% of the total exports.

The Philippine bonds due 2030 dropped 0.75 point to 128.75 bid, 129.25 offered.

Meanwhile, Indonesia state-run power company PT PLN's new directors made reducing its dependency on oil a priority for their tenure, according to the Jakarta Post.

The Indonesian government bonds due 2018 were quoted at 105.5 bid.

Pakistan's sovereigns due 2017 were spotted at 83 bid, 87 offered.

Also, China's consumer price index reached 8.7% growth in February, compared to February of 2007, setting an 11-year high, the national statistics bureau said.

CPI was up 2.6% over January.

LatAm tighter with liquidity surge

Latin American trading saw some improvement with the equity markets' all-star performance but showed few leaders or major turnarounds.

"There was nothing really big," said IDEAglobal's Alvarez, although "spreads tightened more than 10 bps," he said.

"There was some short covering in Argentina," he said.

The 8.28% Argentine discount bonds due 2033 were up by 1.5 points to 88.25 bid, 88.9 offered.

"That's the largest bond gainer in the entire [Latin American] universe," he said.

"Brazil was up by 1 point," he said.

The 7 1/8% Brazilian bonds due 2037 were better by 1.1 points to 107.1 bid, 107.3 offered. The 11% bonds due 2040 were quoted at 132.8 bid, 132.9 offered.

Venezuela's 9¼% government bonds due 2027 were better by 0.5 point to 97.5 bid, 97.95 offered.

Elsewhere, Colombia's 8 1/8% sovereign bonds due 2024 added on 0.75 point to 114.5 bid, 116 offered.

AmBank brings S$425 million offer

AmBank Bhd. (BB/BB) announced the offer of S$425 million 10-year capital securities along with subordinated notes.

Both issues are offered as a package.

BNP Paribas and AmBank will act as joint bookrunners for the deal.

Proceeds will be used to fund the bank's growth.

AmBank is a Kuala Lumpur, Malaysia-based retail and commercial bank.

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