Emerging markets celebrate May Day; Prices climb with equities; Israel Electric talks benchmark

By Aaron Hochman-Zimmerman

New York, May 1 - Emerging markets were strong even as many local markets were closed for May Day.

Latin America was still riding high over Brazil's rating upgrade from Standard & Poor's, which was complimented by positive data from the United States.

"We're still going to be defined by what U.S. equity does," a trader said.

"It will just carry on choppy," with widening on the bad days and tightening on the good days in the U.S. market, he said.

Still, the generally aggressive sentiment is likely to last "until we get some supply or until [U.S.] equities stall out," he said.

No new supply came from the pipeline on Thursday, but Israel Electric Corp. talked its benchmark 10-year offering at Treasuries plus 375 basis points.

"There's opportunity to put risk on," a trader said.

Although, "if you get it wrong, or get it right at the wrong time, that could be quite painful," he said.

"That's the state of play for the summer," he said.

Over the long term "if you pick up a newspaper these days it seems evenly balanced, doesn't it?" he asked, adding that predictions about the health of the world economy cover the range from doom to opportunity.

Meanwhile with rallying stocks, volatility sank all day to end lower by 1.91 at 18.88, according to the VIX index. The index is a common measure of market volatility.

As Treasuries were off slightly, emerging markets wrapped in by 6 bps to a spread of 258 bps, according to JPMorgan's EMBI+ index. The EMBI+ determines the amount of extra yield investors will demand to keep assets in emerging markets debt.

Brazil keeps party going

In Latin America, "there was a big rally led by Brazil," said Enrique Alvarez, a Latin America debt strategist at think tank IDEAglobal.

The celebratory sentiment was egged on by rallying U.S. equities, which reacted well to a surge in the value of the dollar.

The 11% Brazilian bonds due 2040 were better by 0.5 point to 136.625 bid, 136.875 offered.

The 7 1/8% bonds due 2037 jumped 2.5 points to 116.5 bid, 117.5 offered.

Brazil's credit rating upgrade to BBB- from S&P inspired a rash of buying and supported the belief that Colombia may be next to be promoted to investment grade.

The 8 1/8% Colombian bonds due 2024 added 1.75 points to 120 bid, 121 offered.

In Venezuela, president Hugo Chavez has announced that he will ask the supreme court to allow the government takeover of the nation's largest steel producer, Siderurgica del Orinco (Sidor), after talks with Luxembourg's Ternium SA failed.

Ternium had reportedly been seeking $3 billion to $4 billion for Sidor.

Chavez has also taken steps to nationalize Mexico's cement manufacturer, Cemex SAB de CV.

The 9¼% Venezuelan sovereigns due 2027 were better by 1.25 points to 93 bid, 94.125 offered.

Strike less likely in Argentina

In Argentina, the rhetoric calmed on Thursday and a resumption of the farmers' strike seemed less likely than in recent sessions, or "at least they're taking their chances," IDEAglobal's Alvarez said about investors who flocked to Argentine credits.

Also, tax collection revenues in April were up 41.6% from April, 2007 at about 18.8 billion pesos, according to the Buenos Aires Herald.

Estimates of 17.9 billion pesos to 18.8 billion pesos came from a survey of nine foreign and domestic analysts, the report said.

The 8.28% Argentine discount bonds due 2033 launched up 2.25 points to 82.65 bid, 83 offered.

Asia 'super strong'

"Everything's super strong," a trader said about Asian trading, although volumes remained light.

The investment-grade crossover index tightened nearly 30 bps, while the high-yield crossover index narrowed about 35 bps, he said.

"There was really good buying in 'Phily' and 'Indo' cash today," he said.

"There's a lot of buying going on" in general, he said.

In the Philippines, a merger between Philippine National Bank and Allied Banking Corp. will create the fourth-largest bank in the country with total assets of PHP 388 billion, according to the Manila Times.

Philippine National Bank will issue new shares to fund the transaction.

The new entity, Philippine National Bank, will concentrate on remittances and increase efforts in consumer and corporate lending, bank president Omar Mier said in the report.

The Philippine sovereign bonds due 2030 added 0.5 point to 132.25 bid, 132.75 offered.

Meanwhile, "Indonesia is bouncing back nicely," the trader said.

The government bonds due 2017 were better by 1 point to 103.25 bid, 103.75 offered.

Also in Asia, meetings of Pakistan's ruling coalition ended with an agreement to restore the senior judges fired by president Pervez Musharraf during the November 2007 state of emergency.

Few details were released about the plan, but parliament will be involved in their reinstatement, said Nawaz Sharif, Pakistan Muslim League leader and former prime minister.

The Pakistani government bonds due 2016 were again unchanged at 86 bid, 89 offered.

Emerging Europe trades on holiday volumes

Trading in emerging Europe was "dead quiet," but the tone was better than Wednesday, according to a trader.

"[Wednesday] was pretty weak apart from the last hour or so when we saw buyers of the new bonds," he said about the recent issues from Russia's Evraz SA and OJSC Vimpelcom.

Meanwhile, Russia moved more troops and hardware into Georgia's breakaway region of Abkhazia.

Russian peacekeepers have been in both Abkhazia and South Ossetia since they broke from Georgia following the break up of the Soviet Union.

Still, NATO and the Georgian government have accused Russia of provoking a larger conflict over the sovereignty of Abkhazia.

The Georgian government bonds due 2013 were quoted at 100 bid, 100.5 offered.

As hostilities bubbled in Georgia, Russian relations with Kazakhstan were more cordial on Thursday.

President Vladimir Putin spoke with Kazakh president Nursultan Nazarbayev about greater cooperation between the two countries, according to the Itar-Tass News Agency.

The Russian sovereign bonds due 2030 were better by 0.6 point to 115.35 bid, 115.4 offered.

In Turkey 'no leeway' for May Day

In Turkey, police used tear gas and water cannons to disperse crowds of workers marching in honor of May Day.

Earlier the government announced "no leeway will be made" for May Day demonstrations by union members.

Union representatives said "we will be in Taksim [Square, Istanbul] with 500,000 people," according to the Turkish Daily News.

Interior minister Besir Atalay said that no permits for demonstrations in the square have been issued since 1977.

May Day celebrations have been banned in Turkey since the 1980 military coup d'etat.

The Turkish sovereigns due 2030 were quoted at 154.125 bid, 154.375 offered.

Israel Electric talks benchmark deal

In the primary, investors listened as talk was issued by Israel Electric (Baa2/BBB+) at Treasuries plus 375 bps for its dollar-denominated benchmark-sized 10-year bonds.

Pricing is expected on Friday.

Citigroup and Lehman Brothers will act as bookrunners for the deal.

Israel Electric is a Haifa, Israel-based state-run utility.

At Treasuries plus 375 bps, "that's dirt cheap compared to anything else that's out there," a trader said.

Still, another market source said the deal will likely come at an amount of $1 billion with a spread of Treasuries plus 350 bps.

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