Emerging markets close mixed; KfW prices 925 million Egyptian pounds; Russian credits slide

By Aaron Hochman-Zimmerman

New York, Feb. 5 - Emerging markets posted a mixed Thursday with Asia in its familiar place on the most stable ground in the sector.

Currency trouble and low oil prices continued to chip away at Russia, while Latin America, also hurt by currencies, digested the new paper from Petroleo Brasilero SA.

Also in the primary market, Germany's KfW placed a 925 million Egyptian pound one-year bond, but the news investors were waiting for did not appear.

In Jakarta, the government of Indonesia allowed the suspense to build for another day over its upcoming deal.

The major markets were initially damaged by more sour employment data and a 50 basis point rate cut from the Bank of England, but equities mounted a late-day comeback to improve tone across the market space.

Meanwhile, volatility spiked at the open but then tempered to close lower by just 0.12 at 43.73, according to the VIX index. The index is a common measure of market volatility.

Emerging Europe drifts lower

Emerging Europe was "reasonably passive" on Thursday, particularly in Russia where credit "drifted lower" on renewed currency concerns, a trader said.

The subject of currencies, which has gained traction throughout the week, remained at the front of investors' minds.

"It's back to that local currency watching," the trader said, and "once you're in that mood you're never going to be shocked to the upside."

The noteworthy change would be a "crack" in a country's local market, he said.

Meanwhile in Russia, president Dmitry Medvedev met with Bulgaria president Georgi Parvanov to sign agreements that will expedite construction of the South Stream gas pipeline, the RIA Novosti News Agency reported.

The pipeline is expected to handle 31 billion cubic meters per year and will carry Asian gas to customers in Bulgaria, Serbia, Hungary, Italy and Greece, the report said.

The pipeline would cut Ukraine out of the gas supply chain, by traveling from Beregovaya, Russia, under the Black Sea to Varna, Bulgaria.

The Russian government bonds due 2030 fell 1.5 points to 90.5 bid, 91 offered.

The Ukrainian bonds due 2016 were seen at 42 bid, 47 offered.

Elsewhere in emerging Europe, Turkey's think tanks and government representatives met to tackle the country's growing unemployment.

"We are going to evaluate the global crisis' impacts on employment and the measures needed to be taken with social bodies," prime minister Recep Tayyip Erdogan said, according to the Hurriyet Daily News.

The Turkish sovereign bonds due 2030 slipped 0.5 point to 140.5 bid, 141.5 offered.

KfW prices Egyptian pounds

KfW announced the pricing of 925 million Egyptian pound one-year 18½% bonds payable in dollars (Aaa/AAA/AAA), according to a filing with the Securities and Exchange Commission.

JPMorgan acted as the bookrunner for the registered deal.

Proceeds will be used for general business.

KfW is a Frankfurt-based development lender.

LatAm digests Petrobras $1.5 billion

In Brazil, the new bonds from state energy firm Petrobras were digested well, a trader said.

After the quasi-sovereign priced $1.5 billion on Wednesday, buyers pushed the new 7 7/8% bonds due 2019 as high as 99.75 after they priced on Wednesday at a discount of 98.28 to provide a yield of 8 1/8%.

When the bonds settled they were closer to 0.5 point improved at 98.75 bid.

Meanwhile in Argentina, the government took steps to alleviate the need for coins and the black market which sprang up to support that need.

The government has long-accused the public of hoarding coins, which are the only means to use public transportation.

An electronic system similar to ticketing cards available in New York and London has been instituted in Buenos Aires, reports said.

The government hopes the new system will free up the banking system from intense demand, squash a nearly $57 million black market for coins and eliminate the need for increased minting of change.

The peso was seen trading at 3.4855 to the dollar.

Good buying in Indonesia

Asia remained in its relatively comfortable position on Thursday.

"Overall the tone is firm," with more investor interest "on the cash side than CDS," a trader said.

Mostly "there's been very strong buying of Indonesia cash," he said.

The Indonesian bonds due 2018 were up 2 points at 80 bid, 82 offered, but much of the interest came at the back of the curve, he said.

Particular interest in the longer end of the curve could not be perceived as a clue for how the government will structure a deal at the end of its roadshow, he said.

The medium-term program roadshow continues through next week.

Also in Indonesia, acting coordinating minister for the economy Sri Mulyani announced a growth target of 4.7% compared to the previous goal of 5%, the Jakarta Post reported.

"The total value of exports could grow by 0% to 5%, much lower than the 9% to 10% in 2008," Sri said in the report.

Asia holding well

Elsewhere in Asia, there was more buying of the Korea Development Bank and the Export-Import Bank of Korea, which priced on Jan. 12 and Jan. 20, respectively.

All three quasi-sovereign issues "came at a decent concession," a trader said.

Meanwhile, interest in Pakistan remained slightly piqued, but not terribly so, as the bonds due 2017 held onto their small gains at 41 bid, 45 offered.

In China, the government declared an environmental emergency in the northern and central areas, which have been suffering under severe drought.

Nearly 4 million people and 24 million acres of crops are in danger, the BBC reported.

The dust bowl conditions only compound the problems of many migrant workers in the region who are now unemployed due to the faltering economy.

Also the Philippines, the government bonds due 2030 added 0.5 point to 114.5 bid, 115.25 offered.

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