Emerging markets wait for Fed; High betas show recovery; Local deals trickle through pipeline

By Aaron Hochman-Zimmerman

New York, April 29 - Emerging markets were generally mixed but only on slight volumes as the markets waited to hear from the Federal Open Market Committee.

In trading, Argentina and Venezuela were the winners for the session adding 1.1 points and 1.5 points to their respective benchmark issues.

The primary was only able to push through local deals while eyes were on the Fed.

"It's still incredibly light; it seems strange," a trader said about the generally inactive primary, although, "There's a lot being done in local markets, so that's taking some of the pressure off," but in general, volume is restricted by the Fed meeting.

"The 25 [basis point cut] has been built in for quite some time, said Enrique Alvarez, a Latin America debt strategist at think tank IDEAglobal, about the consensus view of the Fed's next move.

Therefore, the game becomes "an interpretation thing," he said about the memo that will accompany the projected rate cut.

"The characterization of the economy probably won't be good," he said.

"There's still the doom-mongers," another trader said.

"In some ways the risks are heightened," he said.

"The recovery is based on the perception that the worst news is out there, but that's banking only; the banking crisis means nothing to anyone outside the financial industry except for mortgages," he said, adding that commodity prices are beginning to take a toll.

"A lot of economists think it's only now that in the next six months that it's going to start to bite, for me; I'm trying to stay as light as possible."

As stocks bounced lower volatility climbed over 20.00 as it added 0.60 to end at 20.24, according to the VIX index. The index is a standard yardstick of market volatility.

With only a very slight drop in Treasuries, emerging markets was seen unchanged at a spread of 265 bps, according to the EMBI+ index. The EMBI+ determines the amount of extra yield investors will demand to hold money in emerging markets debt.

Emerging Europe sits back to watch

"There were little patches of activity, but it's mostly been pretty quiet," a trader said, pointing to the Fed meeting.

"There's new Evraz [Group SA], new [OJSC] Vimpelcom, so the market's digesting those," he said, adding: "They're off the highs, but still trading above where they came."

Meanwhile, Turkey was placed on the United States' "special 301" list, which identifies countries that "deny adequate and effective protection for intellectual property rights or deny fair and equitable market access for persons that rely on intellectual property protection," according to the U.S. Trade Representative.

The Turkish sovereign bonds were quoted at 153.325 bid, 135.625 offered.

In Serbia, the European Union said it will tighten its ties with Belgrade if the government fully cooperates with the war crimes tribunal in The Hague.

The agreement would not give Serbia full membership but would clear the path toward membership at a time when the issue of Kosovar independence has given nationalist Serbian parties a lead in the polls ahead of May elections.

In Russia, the central bank added 0.25% to its refunding rate in order to contain inflation.

The rate now stands at 10.5%.

The ruble was seen trading at 23.649 to the dollar.

The Russian government bonds due 2030 added 0.3 point to 115.125 bid, 115.2 offered.

Also in corporates, the chairman of Russia's state oil producer OAO Gazprom, Alexei Miller, met with Italy prime minister Romano Prodi and chairman of Italy's ENI, Paulo Scaroni, to forge a tighter relationship between the two energy firms.

"Special attention was paid to the South Stream gas pipeline construction and interaction between Gazprom and ENI within the joint hydrocarbon exploration and production projects in third countries including Libya," the companies said in a joint statement.

Russia, Georgia trade accusations

Meanwhile, Russia accused Georgia of making preparations to invade its breakaway and ethnically Russian region of Abkhazia.

Russia's foreign ministry claimed that a greater Russian presence is necessary to maintain stability.

Georgian officials made flat denials of the charges that it is making preparations for war and turned the accusations of warmongering against Russia for its larger presence in Abkhazia.

Georgia also announced that it will end its bilateral talks on Russian accession into the World Trade Organization until it ends its direct contact with Abkhazia and South Ossetia, according to the Itar-Tass News Agency.

The Georgian government bonds due 2013 slipped 0.5 point to 100 bid.

High betas bounce in LatAm

Trading in Latin America "was more than anything in a wait-and-see pattern," said IDEAglobal's Alvarez.

The Fed meeting is keeping volumes light, and new lows for the Consumer Confidence Index at 62.3 left some investors without much of a risk appetite.

"In a certain sense that is what's pulling down regional markets," he said about the consumer confidence numbers.

In Argentina, trading saw some "back and forth with the potential for a restart of the strike," he said, although there has been talk of pushing the date for the resumption beyond May 2.

The Argentine bonds "are weak, but they have not deteriorated," he said, which is a positive sign.

The 8.28% Argentine discount bonds due 2033 were better by 1.1 points to 78.35 bid, 78.75 offered.

Elsewhere, Venezuela was able to place $4 billion instead of $3 billion on the domestic market on Monday, but "people are very distrusting of the overall structure of the economy," he said, referring to the possible outright nationalization of Sidor, the Venezuelan branch of Luxembourg's Ternium SA.

The 9¼% sovereigns due 2027 took on 1.5 points to 91.75 bid, 92.4 offered.

The bounce of the high betas may be short covering before the Fed's announcement, Alvarez said.

Brazil's credits held firmer than the volatile high betas.

The 11% Brazilian government bonds due 2040 added 0.35 point to 134.65 bid, 134.7 offered.

The 7 1/8% bonds due 2037 were up by 0.4 point to 112.5 bid, 112.8 offered.

Asia slips then stops

Asian trading "opened a bit softer, then died down [in volume] after that," a trader said, as the FOMC held its first day of meetings.

In the Philippines on Monday, the government was only able to sell PHP 3.15 billion of the PHP 6 billion it had hoped to sell during its Treasury auction.

"It appears there is no interest; so, these are bids that we think unacceptable. I guess they're still on the sidelines. The [FOMC] is going to meet this week also; they [are] also going to find out what the decision would be," finance undersecretary Roberto Tan said, according to the Manila Times.

Rather than Treasury auctions, investors have recently paid more attention to central bank special deposit accounts, he said in the report.

Future Philippine central bank rate cuts will be dependent on inflation.

"Sort of standard, really," the trader said about the recent lack of investor interest in Philippine auctions.

The peso was seen trading lower at 42.191 to the dollar.

The Philippine government bonds due 2030 slipped 0.125 point to 131.625 bid, 132.175 offered.

In Indonesia, the country's banks reported earnings with only spots of success during the first quarter, the Jakarta Post reported.

Bank Mandiri showed profits of 1.39 trillion rupiah, compared to 1.03 trillion rupiah during the first quarter of 2007.

Bank Central Asia posted a net income of 1.2 trillion rupiah, compared to 1.1 trillion rupiah in the first quarter of 2007.

Bank Negara Indonesia announced a 61.7% slide in profits.

Still, the central bank expects lending to increase by 22% to 24% in 2008, the report said.

The Indonesian sovereigns due 2017 dropped 0.25 point to 102.25 bid, 102.75 offered.

"Indonesia continues to underperform the rest of the sovereign universe," the trader said.

Also, Iran president Mahmoud Ahmadinejad was in India to conclude arrangements for an oil pipeline to travel between the two countries, through Pakistan.

The pipeline is expected to cost $7.5 billion.

The United States opposes the pipeline, which would make isolation of Tehran, for political reasons, more difficult.

The Pakistani government bonds due 2017 were quoted at 86 bid, 90 offered.

Local deals price

The primary saw its only action from local-currency issues on Tuesday as Ampal-American Israel Corp. priced NIS 578 million series B debentures with a coupon of 6.6% linked to the Israeli consumer price index.

The coupon came lower than the 6¾% maximum allowed for the institutional phase of the offering.

The original offer of NIS 540 was upsized by NIS 38 million.

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

The Export-Import Bank of Korea (Aa3/A/A+) priced a 300 million Mexican peso reopening of its 8.61% bonds due 2017. The bonds were sold at 98.163 with a spread of the rate of the Mbono due 2017 plus 100 bps.

The original 1 billion peso notes were priced on Oct. 4, 2007 and mature on Oct. 11, 2017. Another 800 million Mexican pesos were priced on April 23.

Merrill Lynch was the bookrunner for the registered deal.

Proceeds from the sale will be used for general corporate purposes.

Kexim is a Seoul-based state-owned bank.

New deals were added to the pipeline from the Philippines' Metropolitan Bank and Trust Co., which plans to issue PHP 10 billion in one or two tranches.

The offer will replace the $200 million notes due in 2013, which are first callable in December, 2008. If not called, the rate resets to 8.52%.

Metrobank is based in Makati City, Philippines.

Elsewhere, Russia's Rosevrobank announced plans to issue a dollar-denominated one-year bond with a 9% coupon. The issue, expected in May, would yield 9¼% plus fees.

BCP Securities will act as the bookrunner for the deal.

Proceeds from the sale will be used for general corporate purposes.

Rosevrobank is a Moscow-based commercial and retail bank.

Also, Singapore's TT International Ltd. mandated DBS Bank to manage its new S$250 million multicurrency medium-term note program.

TT International is a Singapore-based electronics wholesaler.

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