Emerging markets falter on soft U.S. equities; London trading frozen in snow; spreads dragged wider

By Aaron Hochman-Zimmerman

New York, Feb. 2 - Emerging markets were hit again by soft U.S. equities, which continued to damage risk appetite throughout the market space.

Investors sat back to watch more disappointing news come across the screens while trading was extraordinarily light with "London being practically closed," a strategist said about the snow storm, which put a freeze on the southern United Kingdom.

In the United States, traders made most of their conversation about Sunday's Super Bowl and secondarily they "kept an eye on employment [data]," a trader said.

There was little news on Monday, but "EM spreads keep going wider and the tights keep going wider," he said.

Even with little fanfare, the Asian Development Bank priced $1 billion three-year bonds at 99.725 with a coupon of 2 1/8% to yield an equivalent of Libor plus 25 basis points.

Trading saw few major moves, but buying gained momentum in Pakistan where the bonds due 2009 will mature in the coming weeks.

Meanwhile in the major markets, it seems that "U.S. equities are going to test the lows of October, November," the trader said.

Volatility initially spiked at the open but tapered off to finish higher by just 0.68 at 45.52, according to the VIX index. The index is a frequently used gauge of market volatility.

Asia silent, ADB prices $1 billion

The silence of Asia's trading day only gave way to a garden-variety high-grade issue from the Asian Development Bank.

The development lender priced $1 billion three-year bonds at 99.725 with a coupon of 2 1/8% to yield Libor plus 25 bps (Aaa/AAA/AAA) early in the afternoon.

The Daiwa, Goldman Sachs, Morgan Stanley and UBS acted as bookrunners for the deal.

The financial institution promotes economic and social progress in the Asia-Pacific region and is based in Manila, the Philippines.

Also in the Philippines, socioeconomic planning secretary Ralph Recto said 800,000 jobs are in jeopardy as the global economic slowdown hangs over the economy, according to the Manila Times.

Certain industries will be harder hit than others, he said.

"The vulnerable are those who are in semi-conductor, electronics and garments, as well as businesses that are exporting their products," he said in the report.

The Philippine sovereign bonds due 2030 inched up by 0.25 point to 112.5 bid.

Elsewhere, buyers began to find favor with Pakistan as the country is "expected to make their debt payment on the 2009 bonds, which mature in two week's time," a trader said.

Investors buying of the bonds due in 2016 and 2017 left the former to close at 43 bid, 46 offered.

The 2009 bonds, which will be redeemed at par, are already trading at 99 bid, 100 offered.

Also, Indonesia's bonds due 2018 were 0.5 point better at 77.5 bid.

'Lackluster' LatAm slips

Latin America traded through a "very lackluster" day on Monday.

The spreads widened and levels slipped on light volumes with Mexico closed, a strategist said.

Still, "the pessimism is still there," he said.

"The markets don't seem to be too healthy around these levels," he said.

In Argentina, the government announced that it will begin another debt swap, which will include international accounts.

The international players will be allowed to swap local instruments at a 2% haircut from the technical value and will receive a five-year bullet bond, a buysider said.

The five-year paper will be issued with a coupon of Badlar plus 275 bps, but a first-year fixed coupon of 15.4%, the buysider said.

The 8.28% Argentine discount bonds due 2033 slipped 0.25 point to 34.25 bid, 34.75 offered.

Elsewhere, Monday was a big day for Venezuela. President Hugo Chavez celebrated his 10th year of holding the seat of power in the socialist republic.

Venezuelans are expected to head back to the polls in the coming weeks to vote on a referendum that might allow Chavez to serve another 12 years.

The 9¼% Venezuelan government bonds due 2027 fell 0.75 point to 50.25 bid, 51 offered.

Also in Latin America, Brazil's 11% bonds due gave back 0.5 point to 124.25 bid, 124.5 offered.

Emerging Europe trading on ice

Emerging Europe was quiet on Monday, especially as Londoners muddled through a rare snowfall that disrupted public transportation enough to strand commuters all over the city.

In Turkey, the government postponed its negotiations with the International Monetary Fund until after the sides are able to agree about the use of the possible $25 billion loan.

The IMF has suggested that the government use the loan to shore up its balance sheet, while the government prefers stimulus spending.

The government has noted that it can survive on its strong currency reserves without the IMF deal but would prefer to move forward with the loan, the Hurriyet Daily News reported.

An additional $25 billion would also serve to secure Turkey's position in the international debt market, finance minister Mehmet Simsek said in the report.

"We planned international bond issue worth $4 billion this year, and we have achieved one-fourth of this issue in the first month of this year despite the stagnation in foreign finance," he said.

The Turkish government bonds due 2030 were unchanged at 141 bid, 142 offered.

Also in emerging Europe, Russia's representative to NATO, Dmitry Rogozin, said that NATO intends to warm its relationship with its former Russian enemies.

NATO's Caucasus and Central Asia representative, Robert Simmons, said "we are planning to draw Russia into cooperation with NATO, and to do it slowly, stage by stage," according to the Itar-Tass News Agency.

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