Emerging markets tone calm, positive; spreads pull tighter; sovereign names heard in primary

By Aaron Hochman-Zimmerman

New York, Jan. 5 - Emerging markets cautiously tested the frosty waters as investors returned to work for the first full week of 2009.

Trading was limited but encouraging as spreads narrowed with help from sinking U.S. Treasuries.

Still, others may be ready to push aside the ice floats and try the primary market waters. The rumor mill began churning up the names of the brave, such as Brazil, Peru and the Philippines.

From the major markets, stocks were slightly lower in the United States and generally higher around the world, but investors were all hesitant to move ahead of any drastic new policies that might be pushed by the incoming administration of president-elect Barack Obama.

As equities inched back, volatility eased as well by 0.11 to 39.08, according to the VIX index. The index is a frequently used gauge of market volatility.

As a sector emerging markets tightened by 19 basis points to a spread of 646 bps, according to JPMorgan's EMBI+ index. The EMBI+ calculates the amount of extra yield investors will demand to hold assets in emerging market debt.

LatAm trading light, tight

Latin America was "quiet," on Monday, a strategist said, but "the market seems to be doing OK."

"We see better buyers coming into the market," he said.

Spreads tightened on big losses in the U.S. Treasury market and "we continue to believe we'll see these trends continue as some people try to get some sort of view of what's going to happen [after president-elect Obama takes office,]" he said.

The much followed high-betas were seen stronger, even as Venezuela's state oil firm PDVSA suspended its program which delivered free heating oil to the U.S. poor through its affiliate, Citgo Petroleum Corp.

Officials in Caracas cited the sustained lower price of oil for the stoppage of shipments.

The Venezuelan 9¼% bonds due 2027 were seen at 54 bid, 58 offered.

Also in Latin America, Argentina's 8.28% discount bonds due 2033 were quoted at 33.25 bid, 34.25 offered.

Brazil, Peru to primary?

Trading may have begun with a whisper, but there were also rare whispers from the direction of the primary market.

Brazil was mentioned as a possible issuer, the strategist said, but details concerning terms of a possible deal were scarce.

Including the rumors about a Filipino issue, the strategist said: "All of those could happen."

The 11% Brazilian government bonds due 2040 were quoted at 131 bid.

A buysider added Peru to the list.

Goldman Sachs will help host a non-deal roadshow on the West Coast Thursday and Friday.

Asia quiet, 'rumblings' in Philippines

Asia traded quietly to begin the week, but in the Philippines rumors and reports began to creep out about a possible sovereign as soon as this week.

It is "only rumblings," a strategist said, but the Philippines' treasurer, Roberto Tan, said that his office is "evaluating proposals" from potential underwriters, he told reporters.

A syndicate official declined to comment on any specific deal but said he believes "there will be a good amount of issuance from EM sovereigns this month."

Meanwhile in Indonesia, infrastructure spending is the solution most favored by public and private sector leaders to combat the effects of the global economic slowdown.

The government, through the Finance Ministry, has already earmarked nearly $10 billion for the improvement of ports, roads, rail lines and irrigation systems, reports said.

"I'm asking other government and regional administrative units to follow suit so that infrastructure projects can start no later than Jan. 5," said finance minister Sri Mulyani Indrawati over the weekend.

Emerging Europe starts slowly

Emerging European trading returned sheepishly for the first full week of the New Year, and "it looks pretty bleak," a trader said.

Oil prices were higher as Russia and Ukraine remained locked in another round of gas debt conflicts; however, many pointed to Israel's air and ground assaults in response to rocket attacks from the Gaza Strip for the spike in prices.

In Russia, even as the gas debt conflict with Ukraine has yet to seriously affect the European Union, government and OAO Gazprom officials pressed Kiev to settle its debts and redraw its contracts.

"Naftogaz Ukrainy is taking an irresponsible stance in relation to Ukrainian consumers. The contract for gas supply to Ukraine in 2009 hasn't been concluded yet," Gazprom chairman Alexey Miller said, according to the company's web site.

The government in Kiev has not accepted Gazprom offers of $370 or $418 per 1,000 cubic meter, he said.

"Let's hope that the offer to deliver gas to Ukraine in January at $450 per 1,000 cubic meters, which is a gas price for the Eastern European countries bordering Ukraine minus costs of gas transit across Ukraine, will return Naftogaz Ukrainy to the negotiating table in the shortest possible time," he said.

For its part, Ukraine filed a lawsuit in Kiev Economic Court to invalidate agreements to transport Russian gas through the end of 2010.

The court previously banned transport at the price of $1.60 per 1,000 meters for each 100 kilometers traveled.

The hearings will open on Jan. 9, the Itar-Tass News Agency reported.

Both Russian and Ukrainian delegates have met with E.U. representatives in order to appeal for support.

Some E.U. countries reported slightly lower pressure in their gas pipelines at the end of last week, but most now report "no substantial disruption," reports said.

Light sweet crude was seen trading as high as $49 per barrel.

The Russian government bonds due 2030 were spotted at 87.75 bid, 88.25 offered.

Elsewhere, in Turkey where gas shipments have arrived normally since tensions began to escalate, the central bank announced its expectation for lower inflation rates in 2009.

Lower commodity prices and less demand around the world will ease consumer prices and inflation, the bank said, according to the Hurriyet Daily News.

December figures showed a 0.41% drop in CPI, leaving the yearly CPI for 2008 at 10.06%.

On Monday, the lira was seen trading at 1.532 to the dollar.

© 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.