Emerging markets slip; Flows seize up; Oceanografia talks $335 million seven-year notes at 11½%

By Aaron Hochman-Zimmerman

New York, July 2 - Emerging markets traded lightly on the last full day before the Independence Day holiday in the United States.

Investors also found reasons to keep risk off the table in the expected release of payroll figures in the United States as well as a possible rate hike from the European Central Bank.

"If the ECB raises rates 25 [basis] points and we see a 100,000 jobs loss; that may set us up for a little bit of a rally," said equity analyst Paul Martin of Martin Capital Advisors.

Still, "there's obviously a fair amount of nervousness about the backdrop," a trader said, which has "overall, a very soft tone."

Trading saw Turkey continue to climb, although its political temperature remained heated.

The benchmark bonds due 2030 added 0.875 point.

In the primary, investors saw talk from one issue.

Mexico's Oceanografia SA de CV talked its $335 million seven-year deal at 11½%.

Meanwhile, volatility, which held close to unchanged during most of the day, jumped higher at the close to finish up by 2.27 at 25.92, according to the VIX index. The index is an often used yardstick of market volatility.

As a sector, emerging markets widened by 2 bps to a spread of 297 bps, according to JPMorgan's EMBI+ index. The EMBI+ estimates the amount of extra yield investors will require to hold assets in emerging markets debt.

Emerging Europe slightly tighter

After a hectic market day on Tuesday, trading in emerging Europe was "not terribly busy," a trader said. "It moved a lot yesterday."

Issues traded a little tighter, he said, but "it's fairly rangebound."

In Russia, an anti-corruption bill, first drafted on June 25, should be enforceable law by the beginning of 2009, president Dmitry Medvedev told lawmakers, according to the RIA Novosti News Agency.

Federation council speaker Sergei Mironov said: "We will carry out, within the deadline, the task set by the president - to see the new year in with a whole package of anti-corruption laws both at the federal and regional levels."

Medvedev has made fighting corruption a priority of his administration.

The Russian government bonds due 2030 added 0.25 point to 112.25 bid, 112.625 offered.

Meanwhile in Georgia, another bomb detonated in the Georgia-Abkhazia conflict zone on Wednesday.

No one was hurt, although the explosion was reportedly near to Russian peacekeeping forces.

Georgian army engineers were dispatched to the scene, but no comment was made by the Georgian authorities.

Turkey's court fight grinds on

In Turkey, credit was a little bit better than the pounding it took on Tuesday on "all the political stuff," the trader said.

The five-year CDS traded tighter by about 4 bps at 326 bps bid.

"It's keeping in tone with the day," he said.

Still, as the trial to disband the ruling AK Party progresses, criticism of the justice system has paralleled criticism of the party itself.

"The judiciary has serious problems in its relations with politics. Instead of trying to dissociate itself from politics, it seems to have become politicized," said Levent Korkut, of Ankara's Hacettepe University, according to the Turkish Daily News.

"There are rumors that different groups have their own judges in the supreme court of appeals," he said.

The system, which so badly needs reform, cannot find it in the current political climate, he added.

The Turkish sovereign bonds due 2030 rebounded from a 1.75 point loss on Tuesday by adding 0.875 point to 139.625 bid, 140 offered.

LatAm eases into holiday

Latin American trading slowed significantly into the afternoon, a strategist said, as investors were already in a holiday mood.

"Spreads are certainly widening," he said, "but that is a result of action in the U.S. equity and U.S. Treasury markets."

"There's just no participation in the market," he said about emerging market credit.

Argentina was initially lower but found its way higher.

President Cristina Kirchner lashed out at speculators for contributing to high food prices.

"The lords of financial gambling have decided to move onto food gambling," she said at the Mercosur summit, according to the Buenos Aires Herald.

"It's the usual story really," a trader said about Argentina's political situation.

The 8.28% Argentine discount bonds due 2033 improved 1.25 points to 75 bid, 75.5 offered.

In Venezuela, credits were "higher a little bit, but I don't think it's oil related," the strategist said as oil set a new record at $144.32 per barrel.

The 9¼% Venezuelan bonds due 2027 took on 0.75 point to 93.25 bid, 94 offered.

Elsewhere in Latin America, Brazil's 7 1/8% bonds due 2037 were quoted at 109.5 bid, 110.5 offered.

Oceanografia talks $335 million

Meanwhile in the relatively quiet primary, Oceanografia SA (/B+/B+) released talk of 11½% for its $335 million seven-year senior secured bonds.

Morgan Stanley will act as the bookrunner for the deal.

The bonds are non-callable for four years.

An equity clawback exists for the first three years in order to redeem 35% of the original principle at par plus the coupon.

Proceeds will be used to refinance existing debt.

Oceanografia is a Mexico City-based shipping manufacturer.

Asia slides into afternoon

Asian trading, which managed to hold flat for most of the session, "actually had a pretty bad close," a trader said. "It's pretty ugly."

"The equity market close caused a wave of lifting in the CDS and indices," he said, adding that "most of the action has been in CDS."

In the Philippines, the government did not accept bankers' offers to buy PHP 7 billion in Treasury bonds at higher yields on Tuesday.

Banks would have accepted 8.81% for the 8¾% bonds, according to the Manila Times.

During the last completed sale on June 3, banks accepted 8.49%, the report said.

"I think this is due to inflation expectation," treasurer Roberto Tan said at a press conference.

The peso was seen trading at 44.94 to the dollar.

The Philippine government bonds due 2030 were better by 0.875 point to 122 bid, 122.5 offered.

In Indonesia, the rising price of crude palm oil added 17.5% to May export totals, which hit $12.9 billion in May compared to $970 million in April, the Jakarta Post reported.

The Indonesian bond due 2017 held flat at 95 bid, 95.5 offered.

The five-year CDS for both the Philippines and Indonesia traded wider by 7 bps to 8 bps.

Also in Asia, Pakistan's government bonds due 2017 were quoted at 72 bid, 76 offered.

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