Emerging markets step higher; Czech Republic plans benchmark bond offering; spreads pull tighter

By Aaron Hochman-Zimmerman

New York, Jan. 26 - Emerging markets opened the week ahead of expectation as Wall Street began the session with more frightening headlines.

Trading was quiet, but positive across the emerging markets.

The action was particularly light in Asia where people were more interested in celebrating the Chinese New Year than tempting the markets.

Turkey made itself a trading leader by adding 1 point to its bonds due 2030.

Elsewhere in emerging Europe, the Czech Republic followed the lead of Poland as it announced a benchmark euro-denominated deal, which may price by the end of the week.

Also in the primary, rumors of a new issue from Mexico's Pemex persisted with little in the way of supporting evidence.

Equities edged higher Monday, helping to cut volatility by 1.58 to 45.69, according to the VIX index. The index is a commonly used measure of market volatility.

Czech offer leads emerging Europe

Emerging Europe eased itself into the week with a positive tone, but with low volumes and light price fluctuations, a syndicate official said.

The investment-grade side was again more active as the Czech Republic announced it will offer a euro-denominated benchmark-sized bond (A1/A/A+), according to a statement from Ondrej Jakob, Ministry of Finance spokesman.

The issue is not unrelated to the Jan. 22 €1 billion issue from Poland, which priced at mid-swaps plus 300 bps, a syndicate official said.

The Czech bonds are expected to come by the end of the week at a slightly tighter spread "at 260 [bps] or 280 bps," he said, and an amount no less than €1 billion.

Barclays Capital, Ceska Sporitelna, and Deutsche Bank will act as bookrunners for the eurobond deal.

The bonds will be launched "subject to market conditions," the statement said.

Elsewhere, Russia's gas spat with Ukraine cost the Russian state oil firm OAO Gazprom $2 billion, said deputy chief executive officer Alexander Medvedev, according to the RIA Novosti News Agency.

"We have the right to demand full compensation from Ukraine, as we lost more than $2 billion during the first weeks of January," he said on Russian television.

The deal between the two was brokered by the respective prime ministers, Vladimir Putin and Yulia Timoshenko; although Ukrainian president Viktor Yushchenko has voiced his opposition.

The 10-year deal requires Ukraine to pay a 20% discount to European gas prices in 2010 and full price in the following years.

The Russian government bonds due 2030 took on 0.5 point 89.5 bid, 90.5 offered.

In Turkey, the central bank announced that its new inflation outlook for 2009 expects an inflation rate between 5.4% and 8.2% by the end of the year.

The numbers should fall with settling commodity prices to 4% to 7.6% by the close of 2010, the central bank said.

The lira was seen trading at 1.627 to the dollar.

The Turkish sovereign bonds due 2030 added 1 point to 142 bid, 144 offered.

LatAm trades on sunny side

Latin America traded better than many had expected on Monday as issues were generally 10 bps tighter, a syndicate official said, but "things are kind of all over the place."

The ongoing talk of an issue from Pemex gained more traction as the names of Citigroup, Calyon and HSBC were attached to the prospective deal, although there is "nothing confirmed," the official said.

However, "this wouldn't be the week to do it," the official said.

With earnings and the Federal Open Market Committee meeting, "I would do it next week," he said.

A deal that is not likely to happen in either week is "that dollar deal from Peru," he said.

The new finance minister has calmed the waffling over whether or not to bring new paper, he said.

Elsewhere in Argentina, farm leaders are scheduled to meet on Tuesday to discuss problems stemming from what has been called the worst drought conditions "in decades," the Buenos Aires Herald reported.

Ahead of the meetings farm representatives have called on the government to take greater action to provide for suffering farmers.

The 8.28% Argentine discount bonds due 2033 added 0.3 point to 35.45 bid.

Colombia's new 7 3/8% bonds due 2019 were "holding pretty well," the official said, up by 0.75 point to 99 bid, 100 offered.

Venezuela's 9¼% government bonds due 2027 slipped 0.5 point to 53.75 bid, 54 offered.

Brazil's 11% bonds due 2040 added 0.35 point to 124.85 bid.

A quiet New Year in Asia

Asia was and will continue to be quiet until the end of the week as people all over Asia celebrate Chinese New Year, a trader said.

In the Philippines, the government issued 6¼% five-year and 7% seven-year local bonds in $2.9 billion in existing debt, the Bureau of Treasury said in a statement.

The government distributed $1.4 billion of the 6¼% notes and $1.6 billion of the 7% notes.

"The market's unequivocal support for the creation of large, liquid benchmarks shows the increased maturity and sophistication of the local fixed income market," said secretary Margarito Teves in the statement.

The Philippine government bonds due 2030 added 0.5 point to 110 bid.

Indonesia's bonds due 2018 were unchanged at 77 bid.

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