Emerging markets bounce big; LatAm high-betas rally back; Venezuela bonds climb; primary silent

By Aaron Hochman-Zimmerman

New York, Sept. 18 - Emerging markets reacted well to a major round of liquidity injections from the world's central banks as well as a 410-point jump from the Dow Jones Industrial Average.

Domestic affairs in the emerging markets were the farthest things from the minds of investors, who were again pasted to the news coming from Wall Street surrounding the fate of almost every major bank.

In trading, the high-betas of Latin America moved to first from last as Venezuela hung 4.75 points on its benchmark bonds due 2027.

Issuers and syndicate officials may have been mildly encouraged by the one day of improvement, but realistic attempts at major currency issues were still far off in the distance.

By midday, manic equities sent volatility past 40.00, but the VIX index ended drastically lower by 3.12 at 33.10. The index is a common gauge of market volatility.

The recovery allowed emerging markets to wrap in tighter by 22 basis points to a spread of 406 bps, according to JPMorgan's EMBI+ index. The EMBI+ determines the amount of extra yield investors will demand to hold assets in emerging market debt.

LatAm bounces as equities soar

Latin America's recovery actually outran its ability to price issues.

The speed of the market's mood swings left traders to deal with wide bid and offer spreads, said Enrique Alvarez, a Latin America debt strategist at think tank IDEAglobal.

"Pricing has been dismal," he said after many primary dealers have been knocked out.

High-betas Argentina, Brazil and Venezuela have led the way back as they have been hitched to the movements in the major markets "tick by tick," Alvarez said.

"We are very, very far from having any sort of concentration on domestic factors," he said.

The 8.28% Argentine discount bonds due 2033 tacked on 2.5 points to 59.5 bid, 61 offered.

The 11% Brazilian government bonds due 2040 jumped 3 points to 127 bid, 127.25 offered.

In Venezuela, the flight of two of Russia's Tu-160 Blackjack bombers, which had been in the country for joint exercises, left to continue their training elsewhere.

The pair of supersonic bombers has a 15-hour sortie scheduled before their return to a Russian airfield, Itar-Tass reported.

The 9¼% Venezuelan sovereigns due 2027 soared by 4.75 points to 75.5 bid, 77.25 offered.

In investment-grade credits, Mexico began to underperform as credits saw a non-Treasury related turnaround.

The 5 5/8% Mexican bonds due 2017 were seen unchanged at 98 bid, 98.45 offered.

Emerging Europe seeks traction

In emerging Europe, "there's really nothing to say, is there?" asked a trader.

Emerging market investors in London watched across the waters and all around them while major banks collapsed or tried to hold each other upright.

Emerging markets are on "a slide down with everything," he said, although a successful morning for equities in New York "allowed us not to fall farther."

Still, the market will need "a bit more traction" before emerging markets begin to mount a serious recovery, he said.

In Russia, trading will resume on Friday after regulators halted activity in the equity market on Wednesday after shares hit a three-year low, reports said.

A 60 billion ruble injection from the finance ministry was announced in order to smother fires in the market, which were set by the implosion of a growing series of major financial institutions.

"The market will receive the necessary support," said finance minister Alexei Kudrin.

Also, Russia and Ukraine plan to deal with issues surrounding the use of Ukrainian ports by the Russian navy.

"Talks on the presence and function of Russia's Black Sea fleet, as well as disputes over the Kerch Strait, will be held in Kiev in late September," said a Russian foreign ministry official, according to the RIA Novosti News Agency.

The Russian government bonds due 2030 added 1.25 points to 102.5 bid.

Meanwhile in Ukraine, a source close to prime minister Yulia Timoshenko said that her bloc in the legislature has ruled out forming a coalition with the nationalist Party of Regions.

Rather, Timoshenko plans to repair the relationship with her former Orange Revolution ally president Viktor Yushchenko, the BBC reported.

If Timoshenko and Yushchenko can reform their coalition, the country may avoid new elections before the end of the year.

Elsewhere in Turkey, the government's Savings Deposit Insurance Fund has $900 million in claims against bankrupt Lehman Brothers.

Of that number, "they had promised to pay us 43% of each collection. That is already being done," said Ahmet Erturk, Savings Deposit Insurance Fund chairman.

"What we have been told is that the payments we receive will not be delayed or interrupted due to the Lehman bankruptcy, and the company subsidiaries abroad were left outside of the whole situation," he said, according to the Turkish Daily News.

The Turkish sovereign bonds due 2030 added 1.75 points to 143.75 bid.

Asia up on central bank injection, equities

Asian trading improved on Thursday as cash from central banks poured into the markets and equities mounted a major afternoon rally to cap off a major bounce back from Wednesday.

In the Philippines, the government touted a budget surplus of PHP 1.7 billion for August after higher-than-expected customs tax collections, finance secretary Margarito Teves said, according to the Manila Times.

The figure represents a year-on-year growth of 22%, the report said.

Still, year to date, the surplus was PHP 13.9 billion behind 2007.

In Indonesia, manufacturing growth slowed, but still grew by nearly 4% in the third quarter, according to the Jakarta Post.

In the second quarter growth reached 4.43%.

"Our energy and monetary policies pose negative effects to our manufacturing sector. These are classic problems that may bring down manufacturing sector growth until the end of 2008," Bambang Soestyo, head of the fiscal and monetary committee at the Indonesian Chambers of Commerce, said.

Also in Indonesia, the defense minister announced the government's interest in purchasing Sukhoi fighter jets as well as two submarines from Russia, according to the Itar-Tass News Agency.

In Pakistan, during high-level talks between Pakistani and American military officials, foreign minister Shah Mahmood Qureshi accused the United States of conducting attacks inside Pakistan without permission and without warning.

He called the attacks "counter-productive" to cooperation between the two, the BBC reported.

In the strike in question, five civilians were killed by a missile launched from an unmanned aerial vehicle.

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