Emerging markets hold steady; Poland prices €1 billion five-year eurobonds; spreads pull tighter

By Aaron Hochman-Zimmerman

New York, Jan. 22 - Emerging markets were sluggish and unmotivated on Thursday.

Poland's €1 billion five-year issue provided some excitement for the investment graders, but the high-yield side took the opportunity to sit back and enjoy tightening yields among U.S. high-yield issues.

Emerging market trading was equally as quiet.

Russia managed to hang a 1.25-point gain on its bonds due 2030, but flows were light and the tone was even to negative as equities cut only half of the day's losses.

Equities sank early but left the lows behind as volatility still managed to drop 0.87 to 47.29, according to the VIX index. The index is a common measure of market volatility.

As a sector, emerging markets wound tighter by 7 basis points to a spread of 670 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.

Poland prices €1 billion

Emerging Europe traded quietly in the high-yield names, a trader said.

Meanwhile, the investment-grade space was consumed with the news of Poland's new €1 billion five-year eurobonds.

The issue priced at 99.725 with a coupon of 5 7/8% and a spread of mid-swaps plus 300 bps (A2/A-/A-).

The bonds priced on the tight end of talk that was between mid-swaps plus 300 bps and 325 bps.

Citigroup, ING and Societe Generale acted as bookrunners for the deal.

The last trade showed the issue a touch higher at 99.8 bid.

"It held up relatively well," a buysider said.

Still, in high yield "there is nothing going on ... especially not for Russia," the trader said.

"There is so much refinancing, the ruble [devaluation]; nobody knows," he said. "We are not very optimistic," he said about the general condition of the market.

Also in Russia, prime minister Vladimir Putin announced his support for continued building in the housing sector.

During a press conference Wednesday, Putin said nearly 61 million square meters of housing was constructed in 2007 and 2008, but "the plans and the tasks set remain unchanged," he said.

"The situation in the world economy is following not the best scenario of all, which has had its effects on Russia, too, but the people are to have a chance to resolve their housing problems and in this they have the right to count on assistance from the state," he said, according to the Itar-Tass News Agency.

The ruble was seen trading at 32.696 to the dollar.

The Russian sovereigns due 2030 were better by 1.25 points to 89 bid, 89.75 offered.

Also in emerging Europe, Turkey plans to offer 1.89 billion lira three-year revenue sharing certificates beginning on Jan. 26 and pricing on Jan. 28.

The certificates will be denominated in lira and dollars.

Lira-denominated notes will pay dividends from 15.68% to 17.52%, while the dollar certificates will pay from 6.14% to 6.46%.

"The local banks will not be interested in this issue," a market source said.

The market expected $3 billion, not the1.89 billion lira which was offered, he said.

"This may affect the existing bonds negatively since this issue will not help a lot to reduce the February borrowing plan of the Treasury," he added.

The Turkish government bonds due 2030 slipped 1 point to 141 bid, 142 offered.

Calm LatAm watches U.S. high yield

Latin America was lying low on Thursday, but syndicate officials were encouraged to see tightening yields from the U.S. high-yield market.

"Investment grade can come at any time, it's just a question of price," an official said, but "high yield is a little more sensitive."

In Latin America's high-yield market, the usual rumors were heard of Mexico's Petroleos Mexicanos SAB de CV (Pemex), but "it's a wait and see game," the official said.

Trading was light, but Latin America's outperformer has been the new 7½% bonds from Chile's Corporacion Nacional de Cobre de Chile (Codelco).

The issue priced at a spread of Treasuries plus 537.5 bps and tightened to Treasuries plus 485 bps, the syndicate official said.

"It's doing incredible," he said.

Meanwhile in Argentina, president Cristina Kirchner discussed the new American president Barack Obama optimistically with former Cuba president Fidel Castro, the Buenos Aires Herald reported.

"Castro said Obama is a sincere person and that he fully believes what the U.S. president says," Kirchner said.

Kirchner was scheduled to leave Cuba on Thursday in order to meet with Venezuela president Hugo Chavez in Caracas.

The 8.28% Argentine discount bonds due 2033 dropped 0.65 point to 34.5 bid.

The 9¼% Venezuelan government bonds due 2027 were quoted at 55.5 bid.

Elsewhere, Brazil's 11% bonds due 2040 were up by 0.5 point at 124.5 bid.

Asia holds steady

Asia held flat along with the other sectors on Thursday as investors began to tire of rumors surrounding a possible new issue from Indonesia.

Meanwhile, one of the larger coal companies is refusing to pay its taxes, said director general of taxation Darmin Nasution, according to the Jakarta Post.

Darmin refused to name the company, but "there is one group that has not paid the royalties. The others have settled the payments," he said,

In 2008, six of the country's coal producers began a dispute with the government after refusing to pay outstanding coal royalties, the report said.

The Indonesian bonds due 2018 inched up by 0.5 point to 76.5 bid.

In the Philippines, the Department of Finance said public debt increased by 3.2% to PHP 5.1 trillion during the second quarter of 2008, according to the Manila Times.

That figure represents 73.1% of the country's GDP.

The Philippine government bonds due 2030 were unchanged at 111 bid, 112.5 offered.

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