Emerging markets weaker, tighter; Indonesia prices $3 billion global bonds; Turkey continues bounce

By Aaron Hochman-Zimmerman

New York, Feb. 26 - Emerging market cash levels fell, but spreads came in on another day of sell-offs in the U.S. Treasury market.

Meanwhile, it was Indonesia which did all of the selling on the primary side of emerging markets on Thursday.

After a long and often awkward period since the debt program was announced, Jakarta finally sold $3 billion in five- and 10-year global bonds.

On the trading side, Turkey continued to climb back from repeated beatings over the previous two weeks.

The bonds due 2030 had seen a high near 143 bid but closed at 128 bid after Thursday's session.

Generally trading was slow, investors agreed, but the news came furiously as all eyes were on Washington, D.C., for the latest bit of the administration's economic recovery strategy.

On Wall Street, equities made and surrendered early gains, but volatility shed 0.01 to 44.66, according to the VIX index. The index is a common measure of market volatility.

On falling Treasuries, emerging markets narrowed by 7 basis points to a spread of 646 bps, according to JPMorgan's EMBI+ index. The EMBI+ estimates the amount of extra yields investors will demand to hold assets in emerging market debt.

The EMBI global diversified index, which represents sovereigns and quasi-sovereigns, was tighter by 8 bps with a spread of 691 bps.

The diversified index has a less strict liquidity rule for inclusion.

Indonesia prices $3 billion

After much waiting and speculation, Indonesia finally priced $3 billion in two tranches (Ba3/BB-/BB).

Throughout the process, interest waivered, a strategist said. "It kept getting cancelled."

Still, the $1 billion five-year bonds priced at 99.455 with a 10 3/8% coupon to yield 10½%.

The $2 billion 10-year bonds priced at 99.276 with a 10 3/8% coupon to yield 11¾%.

Both tranches priced in line with talk.

Barclays and UBS acted as joint bookrunners for the Rule 144A and Regulation S deal.

Elsewhere in Asia, in the Philippines pessimism overtook the business outlook, according to the central bank.

The bank's confidence index sank to negative 23.9%; its lowest level since the first quarter of 2002.

Low commodity prices came as a result, but also as a relief to the recessionary business environment which has spread from the major markets, the bank said in a statement.

"Most respondents anticipated that with the global financial turmoil, economic activity both globally and domestically would be weaker," the statement said.

The Philippine government bonds due 2030 were quoted at 114 bid, 115 offered.

Emerging Europe quiet

Emerging Europe "feels like it wants to go higher," a trader said, but there was "not a huge amount going on," he said on Thursday.

The tone was strong for the moment, but "tomorrow it's something else," he said, and "I'm too old and wily to jump in."

In Russia, inflation of the ruble hit 0.4% during the week ending on Tuesday, the Itar-Tass News Agency reported.

The new figure brought inflation to 3.6% for the year.

The ruble was seen trading at 35.653 to the dollar.

The Russian sovereign bonds due 2030 added 0.5 point to 88.5 bid, 88.75 offered.

Meanwhile in Ukraine, the national oil firm NJSC Naftogaz Ukrainy asked Russia's state-run firm OAO Gazprom to ship less gas to Ukraine in 2009, reports said.

Kiev agreed to buy 40 billion cubic meters of gas this year, but Naftogaz asked to buy only 33 billion cubic meters.

Gazprom acknowledged the request but did not indicate how the firm would react to modifying the agreements the two firms signed.

"That story won't ever stop rumbling," the trader said.

Also, Wednesday's downgrade of the Ukrainian bonds to CCC+ by Standard & Poor's still did not show much effect on levels, the trader said.

"That coffin is already reasonably shut," he said. "This is just another nail."

The Ukrainian bonds due 2016 were quoted at 37 bid, 39 offered.

Elsewhere in emerging Europe, Turkey's GDP growth will grind down to lower levels than those seen in the wake of the Sept. 11 attacks in the United States, the World Bank said.

"Turkey will experience slow economic growth and there will be high unemployment," said the World Bank's Turkey director Ulrich Zachau.

"An economic crisis worse than that of 2001 will be experienced in Turkey," he said.

The Turkish government bonds due 2030 tacked on 1.7 points to 128 bid, 129 offered.

LatAm falters on light trading

Latin America followed equities lower on Thursday as investors marveled at the scope of the proposed budget from the Obama administration.

In Argentina, the congressional opposition to president Cristina Kirchner took up the cause of the striking farmers on Thursday, the Buenos Aires Herald reported.

Encouraged, the farm leaders warned that strikes and economic turmoil will continue if the government persists in refusing to discuss export taxes during negotiations between the sides.

"If talks don't include duties, they won't be real talks," said Eduardo Buzzi, head of the Argentine Agrarian Federation.

"They think that they are feudal lords, kings or emperors who are the masters of the destiny of the people," he said.

The 8.28% Argentine discount bonds due 2033 were pounded for a loss of 2.25 points to 27.75 bid, 29.75 offered.

In Venezuela, bonds could not take full advantage of the rising oil prices.

Light sweet crude was seen trading as high as $45 per barrel.

Meanwhile, the 9¼% Venezuelan bonds due 2027 fell 0.25 point to 54.75 bid, 56 offered.

Also in Latin America, Brazil 11% Brazilian sovereigns due 2040 slipped 0.65 point to 123.1 bid, 123.3 offered.

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