Emerging markets look for leadership; Argentina floats; Primary waits for LatAm corporates, Noble Group

By Aaron Hochman-Zimmerman

New York, May 19 - Emerging markets trading activity was slow to start the week that began with a slower-than-normal overnight session in Asia.

Singapore's bank holiday left only slight leadership for markets in London and New York.

Still in trading, strike-plagued Argentina was able to float on the calm waters on Monday as it added 1.1 points to its discount bonds due 2033.

"It's very slow. There's not a lot of price-driving action out of the U.S. or overall globally," said Enrique Alvarez, a Latin America debt strategist at think tank IDEAglobal.

The slow session overnight was compounded by a slow week of data, which included the index of leading indicators on Monday and PPI on Tuesday, he said.

The week's primary opened up in silent anticipation of a host of Latin American corporate deals, but many see the five-year notes from China's Noble Group as the deal that may bring the primary back to Asia, which has lagged in the recent wave of issuance.

Meanwhile, volatility dipped in the afternoon but crawled back to end higher by 0.54 at 17.01, according to the VIX index. The index is a common measure of market volatility.

With little Treasury movement, emerging markets tightened by just 1 basis point to a spread of 255 bps, according to JPMorgan's EMBI+ index. The EMBI+ determines the amount of extra yield investors are willing to accept to keep assets in emerging markets debt.

LatAm slow, high betas up

Latin America traded slowly on a Monday uninspired by data, politics or big market movers.

Credits in the sector are "happy drifting laterally," said IDEAglobal's Alvarez and they will probably continue on that way until there is a major change in the yield of the 10-year U.S. Treasury bonds or a major change in the risk tolerance in the equity market, he said.

Neither is likely to happen soon.

In trading, stable Brazil lost 0.2 point from its 7 1/8% bonds due 2037. The bonds were quoted at 114.8 bid, 115.1 offered.

The region's high-beta issues improved Monday over the light volumes.

Venezuela's 9¼% sovereigns due 2027 were up 0.5 point to 90 bid, 90.25 offered.

"It hasn't seen 90 [bid] in a while, so that's a good thing," Alvarez said.

Farmers consult

In Argentina, "it's the same story back and forth between the farmers and the government," Alvarez said.

"We understand that we must narrow the gap ... and help smooth things out," Eduardo Buzzi, head of the Argentine Agricultural Federation, told the Buenos Aires Herald.

The farmers have been meeting among themselves to decide how far they will let the government go in negotiations, he said.

"It's all speculation; there's nothing really firm," Alvarez said.

The 8.28% Argentine discount bonds due 2033 were better by 1.1 points at 83 bid, 84 offered.

LatAm corps, Noble in pipeline

After an unofficial long weekend bled over into Monday's session, the primary market calendar is stacked with Latin American corporates and one notable Hong Kong-based commodity investment firm.

"The main factor this week is the Noble Group deal," said a trader who focuses on Asia.

Noble Group's dollar-denominated five-year deal is rated BBB- by Fitch Ratings but is rated BB+ by Standard & Poor's and Ba1 by Moody's Investors Service.

"It's the first high-yield deal to come and test the market," he said.

If conditions are right, "they'll want to go quickly," he said, adding that "they are pretty well known ... hopefully this will get the market going again."

"It'll be interesting."

Also in the primary, Philippine National Bank will offer PHP 6 billion 10-year unsecured subordinated lower tier II bonds in 2008.

The offer will come in one or more tranches and will be managed by Deutsche Bank.

The bonds will be issued at par with five years of call protection.

The coupon will be based on the Philippine fixed-rate Treasury note plus a spread.

Philippine National Bank is a Pasay City-based commercial and retail bank.

Asia dormant after Singapore holiday

"It's completely dead," a trader said.

Monday's sluggish markets, were especially so in Asia as banks were closed for Vesak Day or Buddha Day.

"Most trading desks were sparsely populated overnight," he said, and during Monday's session in the United States "I don't think there was one broker trade."

Still, "the overall tone is pretty firm," he said as "investment-grade spreads were all better."

In the Philippines, the Asian Development Bank found that the growing number of the nation's poor is spending up to 60% of their income on food, the Manila Times reported.

Inflation hit a three-year high of 8.3% in April due to climbing commodity prices.

The Manila-based bank encouraged the government to take action to stabilize the cost of food, but added: "monetary policy may not be an effective tool to combat rising inflation," and "such policies may push the economy into recession, which will hurt the poor even more."

In April, president Gloria Arroyo ordered that the 700,000 poorest families in Manila be identified and given government-subsidized rice, but the government has not yet processed half of the 700,000.

The peso was seen trading at 42.73 to the dollar.

The Philippine government bonds due 2030 were spotted at 131 bid, 131.5 offered.

Meanwhile, Indonesia's vice president Jusuf Kalla said that the country's businesses still rely on a foundation in "politics" rather than "technical or professional support," according to the Jakarta Post.

Traditional problems, such as the limited availability of skilled workers, have restricted economic growth below 7%, Kalla said.

"We are not even obtaining half of our targeted average investments," he said in the report.

Still, data gathered by the State Investment Coordination Agency shows $14 billion in new investments during the first nine months of 2007, compared to $8.3 billion during the same period of 2006.

The Indonesian government bonds due 2017 were quoted 1 point higher than one week ago at 102.25 bid, 102.75 offered.

In Pakistan, to deal with an impending 4,000 megawatt power shortage during the coming summer months, the government will enact daylight savings time in June and continue its program of rolling blackouts.

The clocks will move forward by one hour on June 1.

Two- to 12-hour daily blackouts have already caused riots, and analysts are unsure of how much help the new daylight time will provide, the BBC reported.

The Pakistani bonds due 2017 were seen at 82 bid, 86 offered.

"[Pakistan's] costs are going through the roof," the trader said.

Also in Malaysia, former prime minister Mahathir Mohamad left his United Malay National Organization (UMNO) after it lost control of five states and its two-thirds majority in the parliament, according to the BBC.

Mohamad said he will not rejoin UMNO until the current prime minister, Abdullah Badawi, leaves his post.

Emerging Europe slow

Emerging Europe was deadly quiet on Monday with only light trading.

"It's pretty bad as far as Mondays go," a trader said.

"The underlying cash is all over the place," he said.

In Russia, president Dmitry Medvedev announced Monday that he will sign a decree to arrange a plan to combat corruption.

"Something must be done. We must stop waiting. Corruption has turned into a systemic problem, and we must counter it with a systemic response," Medvedev said, according to the Itar-Tass News Agency.

The corruption plan Medvedev proposed would both update existing anti-corruption legislation and encourage businesses and legal professionals to be more aware of the country's corruption problem.

The Russian sovereigns due 2030 were spotted at 115.625 bid.

Elsewhere in Georgia, the leader of the unrecognized government of Abkhazia, Sergei Bagapsh, denied that a settlement with Tbilisi was reached over the fate of the breakaway region.

Abkhazia has demanded that the Georgian military be withdrawn from the Kodori Gorge overlooking Abkhazia.

The Abkhazian government accused Tbilisi of undermining the negotiation process by ordering troops to the gorge.

Bagapsh is in Russia and will focus the remainder of his trip on economic issues, Itar-Tass reported.

Tighter Turkey

Also, Turkey's sovereigns were seen "tightening in a bit" on a quiet Monday, according to a trader who follows emerging European issues.

"It's traded a couple of times," he said.

The Turkish bonds due 2030 were quoted at 153.5 bid and its CDS spread at 231 bps offered.

Meanwhile, a new draft bill submitted by prime minister Recep Tayyip Erdogan will cloud economic transparency and make appeals more difficult, some have said, according to the Turkish Daily News.

The price of launching an appeal increased from about $245 to between $811 and $8,110, the report said.

Also, the bill would allow some, tenders exceeding certain amounts of money to be excluded from the Official Gazette.

"These changes are against both the general rule of law and European Union norms," said Tevfik Diker, a former legislator and founding president of the Association to Fight Against Corruption.

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