Emerging markets hold momentum; Argentina farm bill rejected; TMK talks benchmark in 10¼% area

By Aaron Hochman-Zimmerman

New York, July 17 - Emerging markets enjoyed another rally courtesy of the U.S. markets and stronger-than-expected earnings on Wall Street.

In the secondary, Argentina's bonds were trading stronger after the highly controversial farm tax bill was killed by a tie-breaking vote in the senate.

Argentina's success helped improve most of Latin America, but investors continued to be fearful of finicky Ecuador as its benchmark bonds due 2030 fell 2 points.

Elsewhere, the primary market was back on its feet as Russia's OAO TMK released talk in the 10¼% area for its long-awaited benchmark dollar bonds, while Singapore's Fraser and Neave Ltd. priced $100 million.

In general, investors were pleased with the markets' success, but few were convinced the successive rallies meant meaningful change for the broader economy.

The second consecutive 200-point equity rally was only able to chip away slightly at volatility, which ended lower by 0.09 at 25.01, according to the VIX index. The index is a commonly used gauge of market volatility.

Tumbling Treasuries allowed emerging markets to reel in tighter by 15 basis points to a spread of 286 bps, according to JPMorgan's EMBI+ index. The EMBI+ determines the amount of extra yield investors are willing to accept to hold assets in emerging markets debt.

TMK talks benchmark

Taking a cue from the strong sentiment in stocks, the primary market opened the spigot just slightly on Wednesday.

TMK (Ba3/BB-/) released talk in the 10¼% area for its upcoming dollar-denominated benchmark-sized three-year senior loan participation notes.

ABN Amro, Barclays and ING will act as bookrunners for the deal.

The notes will be paid as a bullet.

TMK is a Moscow-based pipeline materials manufacturer.

Also, Fraser and Neave issued a fifth series of notes made up of $100 million of 10-year putable notes.

The notes bear interest at Libor plus an undisclosed margin, are in denominations of $100,000 each and mature on July 17, 2018.

The notes were issued under the company's S$2 billion multicurrency medium-term note program established on May 7, 2007.

BNP Paribas is the dealer.

The net proceeds from the issue will be used to refinance debt and to provide working capital.

Based in Singapore, the company is involved in manufacturing and distributing beverages and glass containers.

Farm bill shot down

In dramatic fashion, Argentina's senate voted against the farm goods export tax resolution by a vote of 36 to 36 with vice president Julio Cobos casting the deciding vote against his government.

"They tell me I must go along with the government for institutional reasons, but my heart tells me otherwise. May history judge me, my vote is not for, it's against," he told reporters.

"They like that drama angle," said Enrique Alvarez, a Latin America debt strategist at think tank IDEAglobal.

"That's been the highlight of the entire category," he said, although it does signal a complete recovery of the credit.

"A short-covering rally is the correct assessment," he said.

Within the next few days the government will come back with its new plan to move forward, but in the meantime, protests will likely not let up, Alvarez said.

Still, in the credit market "there's got to be some nibblers down here ... it's very cheap to the rest of the category," he said.

The 8.28% Argentine discount bonds due 2033 were unchanged on the bid side at 73.5 bid, 74.5 offered.

LatAm rides externals

Trading across Latin America was improved with Argentina and U.S. equity success, but there were weak points.

"Treasuries are very much going against the grain for LatAm," Alvarez said, which is why momentum in the category has been relatively tempered.

Investors are "getting nervous" over a referendum vote in Ecuador, which is expected in September, he said.

In recent sessions, the credit has traded with very wide bid, offer spreads, which have caused a lot of swings in price, he said.

The 8% Ecuadorian bonds due 2030 were spotted lower by 2 points at 89 bid, 91.75 offered.

Elsewhere, Brazil was a big underperformer, which is an ominous sign for the market, Alvarez said.

The bonds, which are "more obedient to externals" because of their close ties to the developed world through the heavy commodity trade, have been deteriorating along with the major market economies, he said.

The 7 1/8% Brazilian government bonds due 2037 fell 0.35 point to 109 bid, 109.75 offered.

Also in Latin America, Venezuela remained unaffected by tumbling oil prices.

Light sweet crude fell as low as $129 per barrel on Wednesday, while the 9¼% bonds due 2027 were up 1.125 points to 91.85 bid, 92.5 offered.

Asia breaks even

"Spreads are tighter again" in Asia, a trader said, but he was quick to note that although the high-yield index tightened by 30 bps, "we are back to where we started the week."

Still, "it's definitely firmer, better tones ... We are seeing some risk get put to work," he said, although volumes remained generally thin.

Before investors really begin to breathe easily "we're going to need to get through some more earnings," he said.

In the Philippines, the central bank's monetary board raised two key interest rates by 50 bps in order to help control inflation, according to a press release.

The overnight borrowing rate was raised to 5.75%, and the overnight lending rate was raised to 7.75%.

Energy and commodity prices initially pushed the inflation spike, but the effects are now evident in core inflation, the release said.

Although inflation is expected to ease in the latter part of 2008, at the current interest rates, the bank feared inflation may surpass target figures, and "the monetary board is prepared to take all necessary actions to address the threat of high inflation and promote price stability," the bank statement said.

The peso was seen trading at 45.351 to the dollar.

The Philippine sovereign bonds due 2017 added 0.625 point to 123.25 bid, 123.75 offered.

Meanwhile in Pakistan, rather than drowning losses in a dry martini, investors in Pakistan took to the streets in Karachi to demand the tumbling stock market be temporarily closed, reports said.

Two were injured, while windows were broken and tires were burned in cities around Pakistan.

Many Pakistanis feel that the new government will not be able to effectively manage the economy, a BBC analyst said.

The rupee was seen trading at 71.80 to the dollar.

The Pakistani sovereign due 2017 was quoted at 70 bid, 75 offered.

Report favors three Indonesia sectors

A report in the Jakarta Post labeled corporate bonds in the telecom, infrastructure and real estate sectors stronger investments than Indonesia's sovereign.

"...Which has been consistent," a trader said.

"Asian high yield has been pretty much an unmitigated disaster zone," he said, except for sectors such as mining and Indonesian telecoms.

The Indonesian telecom bonds have relatively low maturities and are well-structured deals, he added.

However, the corporates are struggling because of their relative illiquidity, the report said.

The sovereign's trading volume for June hit $403 million compared to corporate bonds' $26 million of trading.

The report cites a strong economic outlook, which will bolster the higher-beta corporate credits.

Despite rising inflation and energy prices, the GDP continues to grow at a rate that almost doubles the International Monetary Fund's predicted 3.7% GDP growth rate.

Indonesia's actual growth posted a 6.2% increase in the first half of 2008 while the finance ministry expects to end the year at a 6% growth rate.

The report cites three sectors that have outpaced the financial sector.

"In June 2008, property, telecommunications and infrastructure recorded total returns of 1.07%, 1.20% and 6.28%, respectively," the report said.

The rupiah was stronger, trading at 9,143.00 to the dollar.

Still, the Indonesian government bonds due 2017 were unchanged at 96.75 bid, 97.5 offered.

Emerging Europe stronger

Emerging Europe traded tighter on Wednesday thanks to a strong earnings performance in the United States, which sent stocks soaring by 207 points on the Dow Jones Industrial Average.

Meanwhile in Russia, the United Kingdom's BP "expressed its displeasure" on Wednesday about Russian Federal Migration Service (FMS) comments that suggest Robert Dudley, chief executive officer of Russia's TNK-BP, will not be allowed a new visa.

Dudley was ordered to leave Russia at the beginning of the month.

"I am extremely concerned that, yet again, there has been inappropriate and unauthorized interference by TNK-BP shareholder managers in this process," said BP executive vice president Lamar Mckay in a statement.

"Representations by one group of shareholders appear to be able to override the requests of the chief executive, who holds the only legal authority to act for the company in these matters," Mckay said.

TNK-BP has often accused the Russian government of harassment.

In Turkey, exports hit their target and topped $125 billion year over year, said state minister Kursad Tuzmen, according to the Turkish Daily News.

The automotive products sector was the leading sector, with exports totaling $15.5 billion. Iron and steel ranked second with $10.5 billion in exports.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.