Emerging markets wind tighter; Turkey's bonds climb 1.5 points on IMF talk; new supply expected

By Aaron Hochman-Zimmerman

New York, March 16 - Emerging markets remained slow as the market opened on Monday, but investors were uplifted by the scent of new deals cooking.

A sovereign and a corporate from Israel joined the queue along with Vietnam, which is expected to print the first of three $100 million bonds on Friday.

"The market could see some issuance," an encouraged strategist said.

Trading narrowed as well thanks to help from the G20 leaders, who agreed to increase their support for the IMF.

Turkey, a possible IMF beneficiary, also took a boost from the day's news as it added 1.5 points to its bonds due 2030.

From the major markets, Wall Street's rally finally slipped away, but "I think it's going to be OK," the strategist said, guessing that the day's selling was the beginning of squaring positions for the end of the quarter.

Volatility eased midday but turned around in the afternoon and gained 1.38 to 43.74, according to the VIX index. The index is an often used gauge of market volatility.

As a sector, emerging markets narrowed by 18 basis points to a spread of 678 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.

Pipeline picks up

The primary has been building pressure in recent weeks, but the trickle picked up as investors arrived to their desks on Monday.

Israel named Citigroup, Deutsche Bank and Goldman Sachs as its bookrunners of a dollar-denominated benchmark bond offering.

Proceeds from the bonds will be used for general budgetary purposes.

Also in Israel, Cellcom Israel Ltd. announced that it plans to raise NIS 300 million in series D debentures.

Still, no final decision has been made about the possible offering, the company said in a statement.

However, if a bond sale is to proceed, it would only be available to the local Israeli market.

Cellcom Israel is a Netanya, Israel-based telecom provider.

Elsewhere, Vietnam plans to begin a $300 million bond program with a $100 million offering on Friday.

Additional $100 million tranches of the program will be sold on March 24 and March 27.

Emerging Europe leads on IMF support

Emerging Europe surged as the G20 leaders agreed to triple the IMF's financial support to $750 billion.

Many emerging European nations are in talks with the IMF for rescue funding.

Serbia is now in line for a €3 billion loan, reports said.

Turkey is also in the middle of a struggle with the IMF over terms of a possible standby agreement. Many believe the agreement will not finalize until after Turkey's March 29 local elections.

The disagreement has centered on the use of the money.

Ankara believes the money should be used for stimulus, but the IMF has insisted that its money be used to shore up the national balance sheet.

Still, Turkey's bonds have strongly outperformed over the last week, a syndicate official said.

The five-year CDS tightened by 90 bps in one week, "that's significant," he said.

Meanwhile on the cash side, the Turkish sovereigns bonds due 2030 added 1.5 points to 128.5 bid.

Also in Russia, state-run banks Sberbank, VTB and Vnesheconombank were handed 2 trillion rubles in order to support their interests in the defense and manufacturing sectors, said first deputy prime minister Igor Shuvalov, according the RIA Novosti News Agency.

Loans would be made at high interest rates, Shuvalov said.

Meanwhile, prime minister Vladimir Putin said that Moscow would spend 1.5 trillion rubles over the course of 2009 on recovery programs.

The Russian government bonds due 2030 slipped 0.45 point to 92.8 bid.

LatAm slow, patient

Action in the Latin American sector was still "pretty dry," a syndicate official said.

The most significant moves have been monetary easing from Brazil and Chile, he said.

The market is already pricing in Chile at 0%, he said, but "it's the right thing to do," although "it will cause a little inflation."

The market has been largely very calm, but the success on Wall Street "is going to set the environment for deals to get moving in the near future," he said, particularly some of the Brazilian corporates.

In Venezuela, president Hugo Chavez said he would be willing to allow the Russian air force the temporary use of its air base on La Orchila, an island off of the Venezuelan coast.

Chavez insisted he did not offer the Russians a permanent station but would allow Russian bombers to land and refuel in order "to meet their strategic aims," he said on Venezuelan television, reports said.

A flight of two Russian Tu-160 Blackjack bombers landed in Venezuela during a September air and naval exercise.

The Tu-160 is widely believed to be a copy of the United States' B-1B Lancer bomber.

The 9¼% Venezuelan government bonds due 2027 inched up by 0.125 point to 56.75 bid, 57.75 offered.

The 11% Brazilian bonds due 2040 were quoted at 122.5 bid, while Argentina's 8.28% discount bonds due 2033 slipped 0.5 point to 26.5 bid, 28 offered.

Asia mixed, Indonesia strong

Asia traded mixed on Monday as U.S. equities built upon and then lost last week's rally.

In the Philippines, remittances grew by only 0.1% to $1.3 billion in January, according to a central bank statement.

The January figure fell from 15% growth in January 2008.

Still, the bank feels remittances will regain a stronger growth pace in February.

The United States, Saudi Arabia and Canada were the major sources of January remittances.

The Philippine government bonds due 2030 fell 0.25 point to 113.75 bid, 115.25 offered.

In Indonesia, election season kicked off over the weekend.

President Susilo Bambang Yudhoyono will seek a second five-year term but is in the process of finding a new running mate, reports said.

The Indonesian bonds due 2019 jumped 2.25 points to 104.25 bid.

Also in Asia, people in Pakistan celebrated the restoration of supreme court justice Iftikhar Chaudhry to his post by prime minister Yousaf Raza Gilani.

The dismissal of dozens of judges by former president Pervez Musharraf sparked nationwide protests.

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