Emerging markets mixed; Venezuela rides oil wave, bonds strengthen; Primary market sits quietly

By Aaron Hochman-Zimmerman

New York, June 30 - Emerging markets were mixed to weaker on Monday as credit mirrored rehabilitating equities.

Investors were largely content to keep their chips off the table as they waited for data releases on a shortened week.

"The market's more wait and see," said Enrique Alvarez, a Latin America debt strategist at think tank IDEAglobal.

"In the meantime the market takes a little here and there," he said, as it generally follows the health of the dollar and the shifts in equity sentiment.

In the secondary market, oil producer Venezuela led trading as crude set a new record. The bonds due 2027 were better by 0.85 point.

Meanwhile, the primary was quiet as there was little appetite even for existing paper.

In the broader market, during a mixed day for equities, volatility was up by 0.51 to 23.95, according to the VIX index. The index is a frequently used gauge of market volatility.

As a sector, emerging markets tightened by just 1 basis point to a spread of 293 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.

Emerging Europe bounces late

Trading in emerging Europe saw "a bit of a bounce" once the New York traders were in front of their screens, a London-based syndicate official said.

"I think Europe was just looking for some direction from New York," he said.

The bounce likely came as a reaction to the sell-off the market suffered at the end of last week, he said.

In Turkey, consumer confidence is poised to start digging to all-time lows, according to a Neilson Co. survey, the Turkish Daily News reported.

The study found that 92% of consumers regard the economy as stagnant.

Also, a drop of 6% to 88 points on the study's rubric is the largest loss of any of the world's economies in three years.

Brazil, the Czech Republic, Poland, Russia and Taiwan all had improved levels of consumer confidence in the three-year study.

The Turkish sovereigns due 2030 added 0.25 point to 140.75 bid.

In Russia, prime minister Vladimir Putin proposed the breaking of the monopolies in the defense sector but leaving price controls in place, the Itar-Tass News Agency reported.

"We will have to regulate armament prices manually and apply the entire range of existent measures, including those anti-monopoly, anti-crime and customs," he said in the report.

The Russian government bonds due 2030 fell just 0.125 point to 112 bid.

Also in the Commonwealth of Independent States, Georgia's breakaway region of Abkhazia saw two bombs explode over the weekend, injuring eight people.

Tbilisi dismissed claims from Abkhazian authorities, who claimed that the Georgian government allowed or even planned the bombings.

Meanwhile in Ukraine, Putin met with prime minister Yulia Timoshenko for energy talks.

Timoshenko announced that Ukraine is free to seek out diverse sources of energy, but the two sides did agree to open a jointly held uranium enrichment facility.

At the conclusion of the meetings, "I did not hear a single question which would whip up conflicts and on which we could not come to agreement and could not find a solution," Timoshenko said.

The Ukrainian sovereigns due 2016 were quoted at 88 bid.

Ukraine to delay sovereign?

June saw a flood of emerging European issuance, which gave some investors pause over the wisdom of adding more.

Still, the calendar holds spots for benchmarks from Russia's OAO Severstal and OAO TMK as well as a $500 million deal from Ukraine.

"It doesn't look too good," a syndicate official said about Ukraine, "I heard it will be delayed," he said.

Vulnerable fiscal policy, the weakness of the current account and nagging inflation are working against Ukraine, a buyside source said.

Another sovereign from Ukraine in the coming weeks and perhaps another in the third quarter may damage external debt spreads, the buysider said.

LatAm holds steady

Latin America was trading laterally on Monday, according to IDEAglobal's Alvarez.

Aside from the investors considering a week shortened by the Independence Day holiday in the United States, "there's a lot of data to look at this week," he said, which will keep risk at bay.

In Argentina, Elisa Carrio, leader of the left-leaning political organization the Civic Coalition, said the government's tax bill before congress will not pass the lower house, according to the Buenos Aires Herald.

In the lower house, agriculture committee president Alberto Cantero said that the legislators are prepared to vote for exemptions from the sliding-scale tariffs for small- and medium-sized farms.

"We'll see what the government does next," Alvarez said, but for now "it's pretty much status quo."

The 8.28% Argentine government bonds due 2033 dropped 0.15 point to 76.4 bid, 76.85 offered.

Meanwhile, oil prices have "propped up Ecuador and Venezuela," Alvarez said.

Light sweet crude hit a new record on Monday above $143 per barrel, but fell off from the high, trading near $140 per barrel.

The 9¼% Venezuelan sovereign bonds due 2027 tacked on 0.85 point to 93.85 bid, 94.5 offered.

In Peru, the political situation "may be getting sort of interesting because they've got a mining strike creeping up," he said.

Miners walked off the job across the country as negotiations with the government over wages are scheduled to begin shortly.

Despite its investment-grade rating, many parts of Peru are very poor, Alvarez said.

The Peruvian 7 3/8% bonds due 2025 slipped 0.2 point to 110.5 bid, 112.3 offered.

Also in Latin America, Brazil's 7 1/8% bonds due 2037 were lower by 0.25 point to 110.25 bid, 110.85 offered.

Uribe calls for referendum

In Colombia, president Alvaro Uribe issued a call for a referendum on new presidential elections as an investigation began concerning the legality of his 2006 re-election.

After the bribery conviction of a political ally of the president, the Supreme Court indicated it may ask for an investigation into connections between Uribe and the illegal money.

The popular Uribe began to make a case for a referendum on his re-election to an unprecedented second term.

Some believe he is angling to stay in office beyond the scheduled elections in 2010.

Still, "they haven't really put out a definitive ruling," Alvarez said about the Supreme Court, and until then, there is little Uribe can do as the legislature is required to draft the referendum.

The 8 1/8% Colombian government bonds due 2024 slid by 0.375 point to 116 bid, 117.25 offered.

Asia opens mixed

Asia traded mixed on Monday over light volumes, a trader said, although "CDS and indices are tighter," he said.

"Cash for the most part is trading pretty defensively ahead of the month's end," he said.

Rather than a Monday of a shortened week on the last day of the quarter, the beginning of the new quarter will be a "good snapshot" of the market's condition, he said.

If investors jump in to "take advantage of the cheap cash bonds out there," the market would show some life, but more likely "it's going to be defensive," he said.

In Indonesia, the government plans to sell the fifth in a series of retail bonds, the Jakarta Post reported.

The bonds are expected with a five-year maturity and a better yield than deposit rates, said director general of debt management, Rahmat Waluyanto, in the report.

Domestic investors are more likely to buy short-term paper, Waluyanto said.

In 2008, the government has issued 90 trillion rupiah of the target 158 trillion rupiah in debt it plans to issue this year.

Of the 90 trillion rupiah, 13.5 trillion was sold between February and March as 4,000 Indonesians participated.

The government is expecting to issue its first sukuk in August but only plans to make it available to institutional investors.

The Indonesian bonds due 2017 were quoted at 94.5 bid, 95.25 offered.

In the Philippines, by the end of March outstanding external debt was at $54.6 billion compared to $54 billion at the end of March, 2007, according to a statement from the central bank.

The bank blamed the weakening U.S. dollar against the yen and euro for nearly negating the $2.8 billion debt payments the government made.

The Philippine sovereign bonds due 2030 held flat at 121.5 bid, 122.5 offered.

Also in Asia, Pakistan's sovereigns due 2017 were seen at 73 bid, 77 offered.

Elsewhere in Asia, China and Taiwan took another step closer to reconciliation as Taipei allowed banks to recognize the Chinese yuan.

The new regulation allows for easier commerce especially for tourist who will be able to travel directly between the two beginning this weekend.

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