Emerging markets reopen primary; Colombia prices $1 billion bonds; trading strong, spreads tighten

By Aaron Hochman-Zimmerman

New York, Jan. 6 - Emerging markets bond trading suddenly sprang to life on Tuesday and brought with it hope for a happier 2009.

Investors noted that the "window" for issuance may be brief and mostly reserved for strong and sovereign credits, but as "the Treasury yields have pulled lower by so much" now is the time to try, said Enrique Alvarez, a Latin America debt strategist at think tank IDEAglobal.

Colombia led off the primary in the New Year as it priced $1 billion in 10-year bonds to yield 7½%.

The Philippines as well as Peru and Chile also joined the crowd of possible issuers that will likely offer a "50 bps concession to where the market is right now," Alvarez said.

In trading, the high-betas in Latin America were led by a surging Venezuela, which added 7.25 points to its bonds due 2027 as strife around the world spiked oil prices.

Asia maintained its healthy late-2008 stride as Indonesia wound tighter, but emerging Europe was largely left out of the fun as the possibility of another serious gas crisis came into focus.

Elsewhere, relatively positive action on Wall Street dropped volatility by 0.52 to 38.56, according to the VIX index. The index is a common measure of market volatility.

As a sector, emerging markets narrowed by 10 bps to a spread of 639 bps, according to JPMorgan's EMBI+ index. The EMBI+ estimates the amount of extra yield investors will demand to hold assets in emerging market debt.

Primary strengthens

Brazil seemed to lead Colombia to the finish line in a race against the clock to price $1 billion 10-year bonds.

However, it was Colombia that printed its new 7 3/8% 10-year senior fixed-rate bonds at 99.136 to yield 7½%.

The deal priced at a spread of Treasuries plus 502.9 basis points.

Barclays and Morgan Stanley acted as bookrunners for the registered bonds, which will mature on March 18, 2019.

Proceeds from the sale will be used for general budgetary purposes.

Brazil closed the afternoon with its proposed $1 billion 10-year senior fixed-rate bonds talked in the Treasuries plus 375 bps area.

Goldman Sachs and Merrill Lynch will act as bookrunners for the registered deal.

Proceeds from the sale will be used for general budgetary purposes.

Meanwhile in trading, largely "the issuing parties were down," Alvarez said.

The 11% Brazilian bonds due 2040 were slightly better by 0.45 point at 131.25 bid, 131.9 offered, but the 8 1/8% Colombian bonds due 2024 were off by 1.5 points at 104.75 bid, 105.75 offered.

For the rest of the category, "Peru is pretty much the next one in the pipeline," Alvarez said, but "Chile would surprise me in a certain sense, but you can't discount them."

Most of the names that have surfaced in the primary market have been the better-rated credits, but lower-tier issuers, such as Panama, may ride in the wake of the larger economies, he said.

If smaller issuers try the market, they will have to act before investors lose their appetites for new issues.

LatAm high-betas riding high

Latin American action was focused on the primary as trading kept its strong pace along with light volatility in U.S. equities.

Argentina's paper was stronger as negotiations between local banks and the government to refinance local loans were "positive," IDEAglobal's Alvarez said.

"That bolstered buying in external debt," he said.

The Argentine 8.28% discount bonds due 2033 added 2 points to 35.25 bid, 36.5 offered.

Still, "Venezuela was the flavor of the day," Alvarez added, pointing to rising oil prices as crises burned hotter between Russia and Ukraine and Israel and the Gaza Strip.

The 9¼% Venezuelan sovereigns due 2027 launched up 7.25 points to 61.25 bid, 62.25 offered.

Asia keeps late '08 form

Asia traded "pretty firm" on Tuesday, a trader said.

"It's basically a continuation of what we saw in the latter part of 2008," he said.

There were "predominant flows in sovereign cash" and a "decent bounce in most of the high-yield issuance off of the lows of late November," he said.

By the sector, "bank paper is still lagging," he said.

In the Philippines, national treasurer Roberto Tan said the underwriter selection process for a global issue was ongoing as of early Tuesday in New York.

Citigroup, Credit Suisse, Deutsche Bank, JPMorgan and UBS all submitted bids to arrange the sale, the Manila Times reported.

Manila plans to borrow $1.5 billion in 2009, compared to the $500 million priced in 2008, the report said.

"It's one of the more opportunistic issuers," the trader said about the Philippines. "It certainly trades well in cash."

Investors expect a $1 billion or $1.5 billion deal soon, the trader said, adding: "I think it'll go pretty well."

The Philippine bonds due 2030 were seen at 109 bid, 111 offered.

Meanwhile, "Indonesia has had a tremendous rally," he said, "300 bps versus the Philippines in the last four weeks."

"It's finally starting to see some selling pressure, but it's still seeing buyers as well," he said.

Also in Indonesia, a prominent lawmaker Al-Amin Nasution was arrested on bribery and corruption charges.

The allegations surround Al-Amin relate to putting protected forest land in the hands of developers, according to the BBC.

The Indonesian sovereigns due 2018 were quoted at 86 bid, 88 offered.

Elsewhere in Asia, Pakistan remained locked at a level of 35 bid, 40 offered.

Emerging Europe slow, low on gas

Emerging Europe continued on its slow pace on Tuesday, Orthodox Christmas Eve, despite a rapidly expanding fuel crisis.

Where trading was concerned, "it's all happening in LatAm, Asia," a London-based trader said.

"Not a peep out of emerging Europe apart from the usual rumors on Turkey," he said.

In Russia, late Monday the leadership of the state-run oil giant OAO Gazprom cut its shipments through Ukraine as contract disputes proceed unresolved.

"The Russian FCS [Federal Customs Service] ordered Gazprom to take immediate measures for optimizing the modes and routes of natural gas supply to European consumers, as well as other means for customs and export legislation adherence," said a Gazprom statement.

Gazprom reduced deliveries by 65.3 million cubic meters, "which equals the amount of gas siphoned in Ukraine," the statement accused Kiev, from Jan. 1 to Jan. 4.

At the outset of the crisis, the slowdown had minimal effects on Russia's more distant customers, which received gas downstream from Ukraine; however, the new Gazprom policy was immediately noticed by Bulgaria, Greece, Macedonia and Turkey.

The Ukrainian national gas firm NJSC Naftogaz Ukrainy warned that Germany, Hungary and Poland may also see shortages.

"Responsibility for potential changes in the natural gas transit regime and subsequent reduction in the amount of supplies to the European consumers stays with Naftogaz Ukrainy," Gazprom said.

Ukraine insists that it does not owe the $600 million Gazprom currently demands, but the sides still have not agreed on the price Ukraine will pay in 2009.

Meanwhile, E.U. nations began to draw from their reserves.

For its part, E.U. hopeful Turkey may turn eastward to Iran to satisfy its fuel needs, the Hurriyet Daily News reported.

Light sweet crude climbed again with bubbling demand to more than $50 per barrel.

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