Emerging markets end trading session mixed; Argentina bonds slide; primary bond market slumbers

By Aaron Hochman-Zimmerman

New York, Aug. 4 - Emerging markets spent the day on Monday yawning off the weekend as equities bounced around offering no solid direction to the market.

Even a slight afternoon equity rally saw "a little bit of a fade into the close," a syndicate official said.

"It's been extremely quiet," he said.

"There's also FOMC tomorrow," a trader said about the Federal Open Market Committee meeting on Tuesday.

At least "oil prices keep falling; I think that's kind of a relief for people," the syndicate official said.

In trading, Argentina was the underperformer as the government in Buenos Aires seemed to flail in the face of its still unsolved tax and inflation problems.

In the primary, issuers were happy to wait for calmer seas, while around the desks investors said there were few deals expected on the horizon.

Meanwhile, equities' rocky day bumped volatility up by 0.92 to 23.49, according to the VIX index. The index is an often used gauge of market volatility.

Following Treasuries, emerging markets tightened by 1 basis point to a spread of 286 bps, according to JPMorgan's EMBI+ index. The EMBI+ estimates the amount of extra yield investors will accept to hold assets in emerging market debt.

Argentina sinks, LatAm slow

Latin America traded slowly on Monday as investors were reluctant to jump back into the market amid a choppy session for equities.

However, Argentina was on the retreat as the government seemed incapable of finding a solution to its economic problems.

President Cristina Kirchner held a press conference to defend her administration's performance during its eight-month tenure.

Her major regret was underestimating the power of the opposition, she said at the conference, but added that she would not have changed any of her decisions and will not make any more cabinet changes.

Meanwhile, farm leader Alfredo De Angeli, of the Entre Rios province Agrarian Federation, asked new agriculture secretary Carlos Cheppi to meet with the four heads of the agriculture organizations to work through the remaining conflicts the guilds have with the government.

De Angeli did promise no new roadblocks in a radio address, adding that it would be former president Nestor Kirchner who "would be happiest" to see new blockades, the Buenos Aires Herald reported.

The 8.28% Argentine discount bonds due 2033 were quoted lower by 1.25 points at 74.75 offered.

In Venezuela, president Hugo Chavez issued warnings to the U.S. Navy's fourth fleet and the United States as a whole that he has received a shipment of 24 Russian Su-30 Flanker fighter aircraft.

"Any gringo ship that sails into brown waters will itself turn brown and go to the bottom, because they'll not get through," he said, according to the RIA Novosti News Agency.

In addition to his threats, Chavez also promised that "they [the Su-30s] are for defensive purposes; we're not going to attack anybody," he said in the report.

The 9¼% Venezuelan sovereign bonds due 2027 were slightly higher by 0.3 point to 89.3 bid.

Also in Latin America, Brazil's highly traded 11% bonds due 2040 were quoted at 131.95 bid.

Asia left flat

Asia traded very slowly on Monday as investors were mesmerized by equities and Treasuries but not inspired to action.

Any movement was "the tail wagging the dog," a trader said about emerging markets' dependence on externals for motivation.

"At the margin people were just reacting to major moves in oil," he said.

On Monday, light sweet crude traded in a range between $119.50 and $126.35 per barrel.

In the Philippines, the government's balance of payments is in jeopardy as an outflow of foreign investments is taking money out of the country, the central bank said.

The central bank had predicted a $2.5 billion balance of payments surplus, but bank officials are beginning to revisit those predictions, the Manila Times reported.

In 2007, the bank posted a record balance of payments surplus of $8.6 billion.

High oil and commodity prices will likely leave this year's total inflows at $1.1 billion, compared to $3.5 billion in 2007.

Still, the disappointing numbers "didn't seem to affect the market that much," a trader said.

The Philippine government bonds due 2030 held unchanged at 127 bid, 127.75 offered.

In Indonesia, government-owned PT Krakatau Steel is now scheduled to be partially sold to the public through initial public offering in November, 2008, the Jakarta Post reported.

The planned privatization was hotly debated for months in government with some arguing that there were banks willing to lend to the steel giant, which could have precluded the 40% sale.

The Indonesian sovereign bonds due 2017 were also flat at 99.5 bid, 100 offered.

Emerging Europe stagnates

Emerging Europe held still as the major market provided little leadership and investors waited on the Fed's FOMC meeting on Tuesday.

In Russia, president Dmitry Medvedev's legislative allies in the United Russia party won changes to the 2009 through 2011 budget, according to the Itar-Tass News Agency.

An additional 96 billion rubles will be given to social and economic development plans in the Far East and the Trans-Baikal region with 63 billion rubles for agriculture and 18 billion rubles for health care.

A package of 5 billion rubles in compensation will go to those who travel by air from the Far East, and the ice-breaking fleet will receive 4.7 billion rubles.

"The consolidation of our efforts, expert and legislative capabilities will allow us to make quality long-term forecasts, optimize budget expenditures and make the budget policy in general more effective," said duma speaker Boris Gryzlov in the report.

The Russian government bonds due 2030 were spotted at 112.45 bid, 112.6 offered.

Elsewhere, Itar-Tass described a relatively calm Sunday night in South Ossetia, Georgia's breakaway province; although it was "not without incidents," the report said.

South Ossetia's interior ministry told the news agency that traffic police in a suburb of Tskhinvali came under small arms fire, but no casualties were inflicted.

Meanwhile over the weekend, women, children and other noncombatants were evacuated across the Russian border into the Russian Federation's autonomous republic of North Ossetia.

Elsewhere in Turkey, president Abdullah Gul asked his AK Party to press on with the reform package intended to prepare the country to accession into the European Union.

Gul said that recent political strife has cost the country two years, but uniting around the reform process will be a way to heal the wounds, he said according to the Turkish Daily News, adding that all political parties desire the same goals.

He also added that public life, including his own, requires more introspection, criticism and empathy.

The Turkish sovereign bonds due 2030 were quoted at 149.3 bid, 149.8 offered.

Primary looks to cool down

"Things look pretty quiet," a syndicate official said after a brief run of benchmark deals capped by Friday's pricing of $500 million of sovereigns from Lebanon.

The 8½% Lebanese bonds due 2015 priced at 99.353 to yield 8 5/8%, but traded up to 99.75 bid on Monday.

"There's nothing out of EM at least in the near term," he said about new issues.

"I'm sitting on my hands today," he said.

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