Emerging markets slip with stocks; Kexim prices $2 billion; sentiment crumbling; Peru hit hard

By Aaron Hochman-Zimmerman

New York, Jan. 12 - Emerging markets began the week squarely focused on the Export-Import Bank of Korea, which priced a $2 billion five-year bond at Treasuries plus 677 basis points.

Mild speculation concerning Peru and Petrobras was also thrown about, but "if anything, this week we're going to see a consolidation in the market," a syndicate official said.

"The market clearly had a little bit of indigestion" at the end of last week as it turned over issues from Brazil, Colombia, the Philippines and Turkey; as well as last year's deal from Mexico, he said.

Trading on Monday reflected a return to reality, a trader said, as investors watched both equities and commodities fall and were reminded that the global economy has a long road to recovery.

Equities' poor showing allowed volatility to make a steady climb throughout the session as it added 3.02 to close at 45.84, according to the VIX index. The index is a frequently used yardstick of market volatility.

As a sector, emerging markets widened by 13 bps to a spread of 663 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.

Kexim prices $2 billion

Kexim priced $2 billion five-year senior fixed-rate notes (Aa3/A/A+) at 99.624 and at a spread of Treasuries plus 677 bps.

The new bonds carry a coupon of 8 1/8% to yield 8.218%.

The bonds were talked at mid-swaps plus 625 bps.

Citigroup, Deutsche Bank, HSBC, Merrill Lynch and RBS acted as bookrunners for the registered deal.

Proceeds will be used to extend foreign currency loans as well as repay maturing debt and other obligations.

The bonds traded tighter by 10 bps in gray market trading and closed the day nearly 12 bps tighter from its printing, a trader said.

"That's pretty good for a large, benchmark deal," he said, considering the heavy losses in the equity markets.

The deal priced at the tight end of its talk and was two-times oversubscribed, he said.

Tone falls flat in Asia

Asian trading was consumed by the news of Kexim's new deal, but even on low volumes "there was a material shift in sentiment" toward the negative, he said.

"The hope that was pervasive during the end of last week is certainly starting to dwindle," he said.

Meanwhile in the Philippines, foreign direct investment improved by $31 million in October, compared to October 2007, the central bank said in a statement.

The figure brought the total for the first 10 months of 2008 to $1.4 billion, compared to $2.6 billion for the same period of 2007.

The United States, Japan and Singapore represented the top investors who focused capital on the Philippine manufacturing sector, followed by services.

Most of the investment, during the difficult market conditions, came from "equity capital infusion and reinvested earnings from non-resident investors," the bank statement said.

The Philippine government bonds due 2030 were seen flat at 111 bid, while in Indonesia the sovereign bonds due 2018 sank 4 points to 80 bid.

Elsewhere in Pakistan, the credit "seems to be getting a little more support," the trader said.

"Clients are hoping it goes a little lower to buy some," he said.

The Pakistani bonds due 2017 were quoted stronger at 40 bid.

Peru sinks, leads primary speculation

Latin America traded slowly and kept its "eyes peeled for Peru," a syndicate official said.

"They could come at any moment," he said, now that its U.S. West Coast roadshow is complete, but speculation of supply coming into the curve set off the sellers.

The 8 3/8% Peruvian bonds due 2016 were slammed for 6.75 points to 10.25 bid, 11.5 offered, while the 6.55% bonds due 2037 plummeted 4.25 points.

"There's a rumor that it will be a two-tranche" issue, he said.

Another potential issuer left in the pipeline is Brazil's national oil firm Petroleo Brasileiro SA.

"Everyone thinks they should come; they have very large financing needs," the official said.

"I think they're going to come; it's just a matter of time," he said.

"Brazil already set a benchmark," he added.

The new 5.875% Brazilian bonds due 2019 were lower by just 0.3 point at 96.2 bid.

LatAm falls with equities

With little news, "the market was a tiny bit softer," the syndicate official said.

There was little change after Argentina was ordered by a New York court to make $2.2 billion in payments on defaulted debt.

Also in Argentina, president Cristina Kirchner is expected to return to work on Wednesday after reportedly experiencing fainting spells.

Details of the illness were scarce, but her condition forced the cancellation of scheduled diplomatic trips to Venezuela and Cuba, reports said.

The 8.28% Argentine discount bonds due 2033 were unchanged at 33 bid, 34.65 offered.

The 9¼% Venezuelan government bonds due 2027 were lower by 1 point at 59 bid, 60.25 offered.

Mexico's new 5.95% bonds were lower by 1.5 points to 98.58 bid.

Emerging Europe steady amid gas row

Emerging Europe was "dead today," a London-based trader said on Monday.

"I struggled to get anything going," he said.

Still, "all else being equal, the market can rally a bit more," he said.

The major news in the category seemed to be playing the final act on Monday as Russia agreed to reopen the gas lines through Ukraine beginning on Tuesday, reports said.

After shutting gas supplies to its European customers, leaving many energy strapped countries to suffer fuel shortages, Moscow and Kiev agreed to a European Union brokered monitoring system for gas sales and shipment to the West.

Despite the latest act in a long-running drama between Russia and Ukraine, "Russia's been rallying," the trader said about the sovereigns.

"Everything, net-net, has been rallying," he said, adding: "the corps are a bit better bid."

"The market has stabilized to the degree that decent names are in demand again," he added.

The Russian sovereign bonds due 2030 were seen lower by 0.25 point at 91 bid, 91.25 offered.

The Ukrainian bonds due 2016 were generally stable throughout the quarrel and were quoted at 38 bid, 42 offered on Monday.

At those levels the issue "hasn't got very far to go," the trader said. "There are no willing sellers," he said.

Meanwhile, Turkey continued to remain largely out of the fray.

The Turkish government bonds due 2030 were seen at 143.5 bid, 144.5 offered.

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