Emerging markets softer; Argentina leads price drop; Poland prices €2 billion

By Aaron Hochman-Zimmerman

New York, June 13 - Emerging markets wound tighter on weak Treasuries, but prices sank as inflation kept rate hikes on the table around the world.

The 0.8% increase in the U.S. Consumer Price Index was encouraging to investors, but it was not enough by itself to save the day for emerging markets.

"Treasuries are the key here and are the key going forward," said Enrique Alvarez, a Latin America debt strategist at think tank IDEAglobal. "There's going to be pressure everywhere for the rates to rise."

Meanwhile in trading, Argentina led the losers by dropping 1.125 points from its dollar-discount bonds due 2033 as the specter of food shortages crept closer.

Poland had the big day in the primary as it priced €2 billion with a spread of mid-swaps plus 60 basis points.

Still, "it'll be a strong week" in the primary, a syndicate official said about the week beginning June 16. The primary has benchmarks in the pipeline from Russia's OJSC Gazprombank and Kazakhstan's JSC NC KazMunayGas.

However, according to an emerging markets strategist, "we may see another week of uncertainty," he said, adding that Friday may have been one of the first tastes of "the summer doldrums" on the credit side.

Elsewhere, equities ended the week on the positive side, which sank volatility by 2.11 to 21.22, according to the VIX index. The index is an often used measure of market volatility.

Treasuries rolled back again on Friday, which tightened emerging markets by 3 bps, to a spread of 241 bps, according to JPMorgan's EMBI+ index. The EMBI+ determines the amount of extra yield investors will require to keep assets in emerging market debt.

The EMBI global diversified index, which represents sovereigns and quasi-sovereigns, was tighter by 4 bps with a spread of 265 bps.

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

LatAm mixed on U.S. data

Latin America showed slight improvement on Friday with CPI numbers from the United States that were "not that bad," IDEAglobal's Alvarez said.

"What is worrisome are Treasury rates for LatAm," he said.

In Brazil, rate hikes are looking more and more likely, according to Alvarez.

"The market may favor a 75 bps hike rather than a 50 [bps hike]," he said about the policy meeting on July 23.

The 7 1/8% bonds due 2037 were lower by 0.3 point to 113.3 bid, 113.6 offered, while the 11% bonds due 2040 added 0.15 point to 132.9 bid, 133.1 offered.

Elsewhere, Venezuela continued to beat the average in Latin America on stronger oil prices, Alvarez said.

Light sweet crude was seen trading near $135 per barrel, while the 9¼% sovereign bonds due 2027 were better by 0.25 point to 96.1 bid, 97 offered.

Also, Colombia and Ecuador continued to squabble as Ecuadorian police arrested three Colombians in what a strategist called a "tit for tat" move.

The three were charged with plotting to kill president Rafeal Correa, the BBC reported.

"We don't know the particular details [of the plot], we only know that there were foreigners with contracts to attack the president," Quito attorney general Washington Pezantes said in the report.

Still, even Correa acknowledged that the three may be "just scam artists," he said in a television interview.

Food shortage looms in Argentina

In Argentina, the government, truckers and farmers have nearly pushed the country into a food shortage as neither side has been willing to make concessions, reported the Buenos Aires Herald.

"That's not the first policy move that [president Cristina Kirchner] wants to make ... giving in to the farmers," a strategist said.

Although, "I don't know why they're not coming to some kind of agreement," he said, but whatever the reason the sides cannot come together, the battle has taken a toll on the country's credits.

"Higher political risk has always been one of the worst things for Argentina," he said.

The 8.28% Argentine government bonds due 2033 were lower by 1.125 points to 80.2 bid, 81.2 offered.

Gains evaporate in Emerging Europe

Emerging Europe opened with a glimmer of optimism even over quiet Friday volumes on the second day of a bank holiday in Russia.

"Some things are better, some things are worse," a trader said.

"It all started better, the sovs were all slightly tighter, but we've given all of that back," he said.

The corporates also opened stronger, but later in the afternoon were "a bit soggy as well," he said, although "it's been very thin," he said at the end of the session on Friday.

The Russian bonds due 2030 were unchanged at 113 bid, 113.25 offered.

Also in the European time zone, South Africa's power problems were still unsolved by the national energy regulator subcommittee looking into Eskom's proposed 53% rate increase, the Times of South Africa reported.

"The six member subcommittee is still deliberating on the tariff application. They are still looking at policy issues," said spokesman Charles Hlebela in the report.

The South African bonds due 2017 were quoted at 114.75 bid, 116.75 offered.

Turkey deals with local, global problems

Turkey's benchmark bonds were roughed up again on Friday through the low volumes.

Even more than in Russia, Turkey has written its own story, a trader said; it has been subject to more volatility and selling than similar credits.

The case in constitutional court against the ruling AK Party and runaway inflation have discouraged investors, while the controversy over the freedom of religion and the wear of headscarves has kept the European Union at arm's length.

Fundamentally, tourism revenue declined to $700 million in April, a market source said, adding that many feel mixed about the state of the tourism industry.

The number of travelers is up, but they are spending less, the source said.

The Turkish sovereign bonds due 2030 dropped 0.5 point to 146 bid, 146.25 offered, aobut 5 points lower than a week earlier.

Poland prices €2 billion

The Republic of Poland (A2/A-/A-) priced a €2 billion 10-year bond at 99.865 with a coupon of 5 5/8% to yield a spread which matched the talk of mid-swaps plus 60 bps.

ABN Amro, Citigroup and HSBC were bookrunners for the deal.

Also, Russia's Home Credit & Finance Bank (Ba3/B+) was able to price $500 million three-year loan participation notes at par with a coupon of 11%.

Citigroup was the bookrunner for the deal.

The notes will be putable after 18 months.

HCFB is a Moscow-based retail and commercial bank.

Philippine National Bank (Ba2) priced PHP 6 billion lower tier II unsecured subordinated 8½% bonds.

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

Israel's RGI International Ltd. (BBB+, Maalot) priced a NIS 51 million add-on to its 8.7% unsecured series A bonds due 2012.

Israel-based RGI develops high-end properties in the Moscow area.

"Progress with our development portfolio is on track. We are very pleased to have successfully raised these additional funds from the Israeli capital markets and that RGI remains an attractive opportunity for investors," said RGI chairman Jacob Kriesler in a press release.

"This leaves the door open for further possible private placements of bonds in the future as the business continues to grow," he said.

CIS benchmarks coming

From the Commonwealth of Independent States, OJSC Gazprombank (A3/BBB-) will offer a benchmark-sized dollar-denominated senior bond.

Barclays and Citigroup will act as bookrunners for the issue.

The roadshow will be held on June 17 and June 18 in Frankfurt, Hong Kong, London, Singapore and Switzerland.

Gazprombank is a Moscow-based joint-stock bank of the gas industry and a subsidiary of Russian energy giant Gazprom.

Gazprom itself is also rumored to have an offer that is waiting for Gazprombank to price its deal, a market source said.

Although, "I doubt it ... before the summer," a syndicate official said.

Elsewhere, JSC NC KazMunayGas (Baa1/BBB-/BBB) mandated ABN Amro, Citigroup and Credit Suisse to lead an upcoming benchmark offering.

A roadshow will held for the deal on June 17 in Los Angeles and Hong Kong, on June 18 in Singapore and New York, on June 19 in London and Boston and on June 20 in London.

KazMunayGas is an Astana, Kazakhstan-based government-owned energy firm.

Commodities sting Asia

Asia's benchmarks slipped again as the inflation whirlpool kept spinning as projections show no easing of commodity prices.

In the Philippines, where inflation is concerned the people "ain't seen nothing yet," the Manila Times wrote.

The Development Bank of Singapore issued a prediction of 11% inflation in September or October, raising the yearly average to 9%, the report said.

The central bank still holds that the 11% peak will come in June and ease into July allowing for a yearly inflation rate between 3% and 5%.

DBS said three more rate hikes of 25 bps each are likely before the end of the year.

The peso was seen trading at 44.4 to the dollar.

The Philippine government bonds due 2030 sank 0.75 point to 128.75 bid, 129.5 offered.

In Indonesia, a new proposal would require local governments to contribute to electricity subsidies, said J. Purwono, an official at the energy and mineral resource ministry, according to the Jakarta Post.

The proposal, which may take effect in 2010, would allow regional governments to set lower prices but would be held responsible for the additional subsidies.

The plan is expected to cut $6.6 billion from the national budget. Currently the budget is calculated under the assumption of $95-per-barrel oil prices.

The model is in effect in the Batam and Tarakan regencies where the majority of customers are commercial, not residential.

The Indonesian government bonds due 2017 dropped 0.25 point to 97.75 bid, 98.75 offered.

In China, weekly flights from Taiwan will be allowed to enter the country rather than just during holidays.

Representatives from both sides worked out an agreement in the first direct talks since 1999.

The two will continue the talks toward greater cooperation in trade, but the political arrangement is not likely to change.

In India, inflation hit a seven-year high at 8.75% for the first five months of the year.

Food and energy prices have added to inflation numbers causing the central bank to raise interest rates by 25 bps to 8% on Wednesday.

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