Emerging markets tighter; Argentina drowns as Lousteau quits; Banco Cruzeiro prices $110 million

By Aaron Hochman-Zimmerman

New York, April 25 - Emerging markets ended the week positively in most corners of the market, but the highly visible credits in Argentina were badly beaten by investors as economy minister Martin Lousteau quit his post.

The benchmark discount bonds due 2033 bled 4 points from Thursday's closing price.

"Risks are mounting, but it looks like debt [is] still following Treasuries," a market source said about the market in general, adding, "outside of Venezuela and Argentina."

In large part, near-term risks have been alleviated from "the Fed's swapping Treasuries for mortgage-backed securities," he said.

"There was bound to be a rebound as near-term risks dropped out," he said about recent sessions.

"Central banks are willing to bail out banks, so that means the immediate threat is pushed off."

Although, "I may still have a bearish view on credit further out," he added.

In the primary, Brazil's Banco Cruzeiro do Sul SA added to the supply with the pricing of $110 million of two-year bonds.

Meanwhile, as equities shifted from mixed to improved, volatility dropped below 20.00, ending lower by 0.47 at 19.59, according to the VIX index. The index is a common yardstick of market volatility.

As a sector, emerging markets tightened by 1 basis point to a spread of 261 bps, according to JPMorgan's EMBI+ index. The EMBI+ calculates the amount of extra yield investors will demand to hold assets in emerging markets debt.

The EMBI global diversified index, which represents sovereigns and quasi-sovereigns, finished with a spread of 261 bps.

The diversified index has a less strict liquidity rule for inclusion.

New lows for Argentina

In Argentina, the benchmark bonds were torpedoed to new lows after conservative economy minister Martin Lousteau offered his resignation earlier than some had expected.

Lousteau was a part of the economic orthodoxy that favored monetary tightening and reporting transparency. He also helped create the current tax hikes that spurred the farmers' strike and which bubbled over into blockaded highways, food shortages and protests.

Lousteau, who is believed to have had many disagreements with other cabinet ministers, is one of the few officers in Cristina Kirchner's cabinet who did not come from the administration of Nestor Kirchner.

The chief of the Argentine tax collection agency, Carlos Fernandez, is likely to become the new economy minister.

For his part, Nestor Kirchner, who is now the chief of the Peronist Party, spoke Thursday night, indicating to market watchers that there will be no change in the government's economic policies.

After fiercely anti-farmer comments, many expect Nestor Kirchner to take an active role in the upcoming conflicts, which are likely to spread across the country after the farmers announce, over the weekend, what forms their protests will take when they resume on May 2.

"It just exacerbates the negative situation in the country, and the market has reacted in a similar fashion," a strategist said.

The 8.28% Argentine discount bonds were walloped for 4 points, which sent the price to 76 bid, 76.5 offered.

Stable credits hold on in LatAm

Credits have been faithfully following Treasuries, a market source said, except for Venezuela and Argentina.

Venezuela has lately been shown through the light of nationalizations and troubled food markets.

The 9¼% sovereigns followed a 1.6-point drop on Thursday, with a 0.5-point loss on Friday to end at 90.5 bid.

More stable credits like Brazil's 7 1/8% bonds due 2037 only slipped 0.4 point to 112 bid, 112.5 offered.

"It's interesting to see Ecuador holding its own," a strategist said.

The 8% government bonds due 2030 were spotted at 100.25 bid, 100.75 offered.

However, in Bolivia a May 4 referendum on independence for the Santa Cruz region "is very negative for the country because it shows the country is very divided," he said.

"[Venezuela president Hugo] Chavez is involved in the politics of other countries," he said. "[President] Evo Morales has absolutely no control or leadership to guide his country and benefit from the high commodity prices."

Although, "it's a minor aspect for the whole of LatAm," he said.

Banco Cruzeiro prices $110 million

The primary ended its big week with Banco Cruzeiro do Sul SA (Ba1) pricing $110 million two-year bonds at 99.772 with a 7 3/8% coupon to yield 7½%.

The yield matched the talk at 7½%.

BCP Securities and UBS acted as bookrunners for the deal.

The bonds will be issued from the bank's short-term note program.

Banco Cruzeiro is a Sao Paulo-based retail and commercial bank.

Elsewhere, Ukraine's XXI Century Investments Public Ltd. issued talk of 10% for its $175 million two-year bonds, according to a market source.

The deal is expected in early May.

ING will act as the bookrunner for the deal.

XXI Century is a Kiev-based real estate investment, development and property management company.

XXI Century priced a $175 million 10% three-year bond with ING in May 2007.

Indonesia's PT Truba Alam Manunggal Engineering Tbk. (B/) mandated UBS to act as bookrunner for a three-year bond offering, according to a market source.

Truba Alam is a Jakarta-based engineering and construction firm.

Also, Israel's Ampal-American Israel Corp. (A2, local) plans to offer NIS 540 million in debentures on Monday. The 6¾% debentures are linked to the Israeli consumer price index.

Of the total offer, NIS 466 million was subscribed on April 16.

Ampal-American is a Tel Aviv-based investment firm.

Emerging Europe pulls tighter

Emerging Europe saw little movement on the price side but some spread tightening as flows continued to be light.

Even the new celebrity bonds from Russia's OJSC Vimpelcom traded mostly flat on the price side since Thursday; however, spreads narrowed as much as 20 bps, a strategist said.

In Ukraine, president Viktor Yushchenko argued against the country's process of privatizing business.

Due to the haphazard procedure "79% of national enterprises have been already privatized leaving the state in possession of critically small amount of facilities crucial for national security," he said according to his web site.

"The funds acquired through privatization need to be wisely and effectively used and aimed at development of industry rather than at filling gaps in the budget," he added.

The Ukrainian government bonds due 2016 were quoted at 99.5 bid, 100 offered.

Also, the president plans a trip to Russia at the end of May, according to the Itar-Tass News Agency.

"I'd like to get acquainted with the newly elected Russian president Dmitry Medvedev," he said according to Itar-Tass.

Yushchenko added that he would like to host Medvedev's first trip outside of Russia as president.

Medvedev is scheduled to take office on May 7.

In Russia, an estimated 60 tons of gold in recently discovered Siberian mines will go up for auction, according to Itar-Tass.

The price for each of four mines will begin between 12 million rubles and 25 million rubles.

The Russian sovereigns due 2030 fell 0.2 point to 114.5 bid, 115 offered.

Turkey appeals to Germany, E.U.

In Turkey, energy minister Hilmi Guler asked German firms to disregard Turkey's political troubles.

"Don't allow the political activity to negatively affect you. We are a strong country," he said at a German-Turkish business summit in Ankara, according to the Turkish Daily News.

Charges of unconstitutional anti-secularism were brought against the ruling AK Party on March 17 by the country's top prosecutor, Abdurrahman Yalcinkaya.

If the charges are upheld, president Abdullah Gul, prime minister Tayyip Erdogan and 69 other party members may be barred from public office for five years.

"A party can be closed down in Europe only if it resorts to violence, according to the Venice criteria. Under the current circumstances, we agree with the statements made by European Commission president Jose Manuel Barroso during his recent visit to Turkey," said Reinhard Silberberg, state secretary of Germany's federal foreign office, at the summit.

The Turkish government bonds due 2030 were unchanged at 154 bid, 154.375 offered.

Asia rallies over rice

Asia performed well "surprisingly" as rice consuming populations struggled with food prices, a market source said.

"We'll see how that pressures ratings," he said.

The indices ended the week with the iTraxx high yield rallying in by 27 bps, followed by the investment-grade index, which narrowed 8 bps.

Meanwhile, the government of the Philippines spent money faster than it could bring it in during the first quarter, leaving the budget deficit almost unchanged, the Department of Finance said, according to the Manila Times.

The government hit a first-quarter deficit of PHP 51.6 billion, compared to a PHP 52 billion deficit after the first quarter of 2007.

"We are hopeful that despite global economic volatility, we will be able to further improve collections. We remain unwavering in our commitment to raise the revenues to fully finance the budget this year and any additional spending that may be necessary to sustain growth and address the issue of food security," finance secretary Margarito Teves said in the report.

However, subsidies for rice may force the government into a PHP 43 billion deficit for the year, the Manila Times reported.

The Philippine bonds due 2030 were seen at 131.3 bid.

In Indonesia, $6 billion to $8 billion in development projects were proposed at the Regional Investment Forum, according to the Jakarta Post.

Most of the projects deal with agribusiness, infrastructure, mining and tourism, the report said.

The organizers of the forum hoped to attract foreign investors and have seen interest from the United States, the United Kingdom, China and the United Arab Emirates.

The Indonesian government bonds due 2017 were better by 0.25 point to 102.25 bid, 103 offered.

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