Emerging market credits trade mixed; Israel prices $1.5 billion 10-year bonds; LatAm lags again

By Aaron Hochman-Zimmerman

New York, March 19 - Emerging markets held in well as the equity rally lost traction.

Trading was flat to slightly better, but risk-takers came out again for more action in the primary.

Israel priced the $1.5 billion it had scheduled for Wednesday after the U.S. Treasury market stabilized, while on the corporate side South Korea's Posco printed $700 million.

The deals were well-received, but a syndicate official wondered when the market would demand larger premiums to compensate for the large-scale buying of Treasuries.

In the secondary market, many issues could not establish a strong direction, but Turkey was unashamedly stronger. The bonds due 2030 added 4 points on their way back from a recent steep drop.

From the major markets, volatility was back as the numbers were higher by 3.62 to close at 43.68, according to the VIX index. The index is a common measure of market volatility.

Primary rolls on

The primary market kept investors busy with new supply for another day on Thursday.

Israel priced $1.5 billion 10-year bonds at 99.498 with a coupon of 5 1/8% to yield 5.19% (A1/A/A).

The deal priced at a spread of Treasuries plus 262.5 basis points after a one-day postponement due to a sharp drop in Treasury yields.

Citigroup, Deutsche Bank and Goldman Sachs acted as bookrunners for the registered deal.

In Asia, Posco priced $700 million five-year bonds at 99.208 with a coupon of 8¾% to yield 8.95% (A1/A/).

The bonds priced at the tight end of talk that ranged from 8.95% to 9.05%.

Citigroup, Deutsche Bank, Goldman Sachs, HSBC and Merrill Lynch acted as bookrunners for the deal.

Proceeds will be used for capital expenditures and the purchase of raw materials.

Posco is a Seoul-based steelmaker and manufacturing firm.

The bonds traded down from a spread of 737 bps bid to as tight at 680 bps bid, a trader said.

"A week ago people were lukewarm about it," he said, but after "a bit of Fed action" now "everyone loves it," he said on Thursday.

The deal will surely be the first of many attempts, he said.

"There's tons of supply in the pipeline" of all different types, he said.

"It'll keep the supply side of the equation satisfied.

Asia 'performed well'

Also in Asia, "the market performed well after the FOMC," the trader said.

"We're slowly seeing some catch up in the dollar price of the sovereign bonds," he said, although "we're still lagging in spread terms."

In Indonesia, bank lending grew in the first quarter, but by only 0.1%, the central bank announced, according to the Jakarta Post.

The first quarter is traditionally slow for lenders, but "we'll just wait and see if lending increases. If not, we will take measures to boost lending," said Wimboh Santoso, chief of the central bank's monetary system stability division, in the report.

The Indonesian bonds due 2019 tacked on 1.25 points to 106.25 bid, 107.25 offered.

In Pakistan, the Supreme Court will reexamine the order which bars former prime minister Nawaz Sharif.

Sharif has been accused of corruption in the past but also led a protest of the current government to reinstate dismissed justice Iftikhar Chaudhry.

"We have requested the court to review the order in the interest of constitutionalism and the rule of law," attorney general Latif Khosa said, according to the BBC.

The Pakistani bonds due 2017 continued to perform well and were seen at 47 bid, 52 offered.

Also in Asia, India's inflation rate set a low not seen since 1995.

The rate grew by just 0.44% in the week ending March 7, down from 2.43% during the previous week, reports said.

The slowing inflation sparked calls for interest rate cuts and concerns over deflation.

The rupee was seen trading at 50.39 to the dollar.

Elsewhere, the Philippines government bonds due 2030 were seen at 116 bid, 117 offered.

LatAm slips lower

Latin America traded weaker with stronger flow and on very little news, a syndicate official said.

The Panama deal has quieted down and very little seems to be coming behind it.

As investors in the sector take stock, many have grown "very negative" all the way through 2011, he said.

Some have called for a 4% drop in regionwide GDP in 2009, he said.

Expect to see "an easing trend" in monetary policy, he said, particularly in Brazil and Chile.

Lower rates may lead to foreign portfolio outflows but should help local businesses raise capital internally, he said, so "we'll have to see how that plays out."

The 11% Brazilian bonds due 2040 were seen at 126.75 bid.

In Argentina, the 8.28% discount bonds due 2033 fell 1.25 points to 26.25 bid, while in Venezuela the 9¼% Venezuela government bonds due 2027 gave up 1 point to 58 bid.

Turkey higher

Emerging Europe traded mixed on Thursday, but Turkey continued its steady march back toward its highs.

The five-year CDS tightened by 50 bps in three days, a syndicate official said.

Meanwhile, prime minister Recep Tayyip Erdogan said talks with the International Monetary Fund will not end until after regional elections on March 29, reiterating what many in the market have been expecting.

"There are developments in a positive direction but there is no need to get into the details because there is nothing that finished yet ... It looks that after elections, we will sit together and finish this business," Erdogan said, according to the Hurriyet Daily News.

The Turkish government bonds due 2030 jumped 4 points to 133.5 bid.

Also in emerging Europe Russia's sovereign bonds due 2030 lost 0.875 point to 93 bid.

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