Emerging market trading mixed at week's end; bonds generally strengthen; Mexico cuts interest rates

By Aaron Hochman-Zimmerman

New York, March 20 - Emerging markets ended the week mixed with Latin America again trailing the other sectors.

Mexico performed slightly better after surprising the market with a larger-than-expected rate cut of 75 basis points to 6¾%.

The bonds due 2014 added just 0.125 point.

The primary also quieted after a busy week, but many still held their eyes east as Asia is believed to have many deals waiting in the pipeline.

The major question which remained on Friday was: "Can we get another week like this week?" a trader asked.

"I think we can get more of the same; that's how it feels to me," he said.

The market may even continue with its patchwork rallies for another four, five or six weeks, he said, but it will likely turn again and "someone will get left holding the bag."

That volatile pattern "can continue for a while," he said.

Equities sold off in the afternoon and volatility spiked by 2.21 to close at 45.89, according to the VIX index. The index is a frequently used yardstick of market volatility.

As a sector, emerging markets tightened by 6 basis points to a spread of 632 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.

'A good day' for emerging Europe

Emerging Europe was "solid dead and quiet," a trader said, but as issues held their value "it was a good day."

Even if certain issues refused to go higher, "they were never going to trade down," he said.

"The benchmark stuff did very, very well," he said.

In Russia, the federal budget will be cut by 27.6% in 2009 even as spending increases by 28.1%, said finance minister Alexei Kudrin, according to the Itar-Tass News Agency.

In what Kudrin called a "unique anti-crisis budget," the government will add 130 billion rubles of currency reserve to stimulate the economy.

The total federal deficit for 2009 is expected to be 3 trillion rubles, prime minister Vladimir Putin said, according to the report.

The ruble was seen trading at 33.503 to the dollar.

The Russian government bonds due 2030 improved by 1 point to 94 bid, 94.25 offered.

Also, Ukraine's bonds due 2016 were quoted at 45 bid, 46 offered, while Turkey's sovereign bonds due 2030 inched up by 0.25 point to 133.75 bid, 134.25 offered.

LatAm slides, up on week

"I do see a dip" in levels, but there were "gains overall on the week," said Enrique Alvarez, a Latin America debt strategist at think tank IDEAglobal.

Latin America ended the week largely in line with equities, he said.

Mexico made itself the center of attention by cutting interest rates by 75 bps to 6¾%, well more than most expected.

The gamble came after Colombia and other economies cut rates and were "not punished," Alvarez said, although the trouble in the manufacturing sector is widely perceived.

The 5 7/8% Mexican bonds due 2014 crept up by 0.05 point to 103.7 bid, 103.875 offered.

In Argentina, president Cristina Kirchner surprised and angered farmers by announcing that 30% of the revenue collected through the export tariff on soy will be transferred to the provinces.

The farmers called the reappropriation a "declaration of war," the Buenos Aires Herald reported.

Farmers protested on the roadsides demanding the taxes be lowered rather than handed over to local governments.

"There's some big power-plays going on over there," Alvarez said.

By handing proceeds to the local municipalities, the federal government "is trying to undercut the argument of the unions," he said, but "this is something we've seen before."

The 8.28% Argentine discount bonds due 2033 fell 1.375 points to 25.125 bid, 27.5 offered.

In Venezuela, the 9¼% Venezuelan sovereigns due 2027 dropped by 1.375 points to 57.3 bid, 58.75 offered, meanwhile in Brazil the 5 7/8% bonds due 2019 dropped 0.2 point to 97.5 bid, 98.2 offered.

Philippines accepts ¥9.3 billion loan

Asia ended a strong week mixed as the central bank in the Philippines approved a ¥9.3 billion loan from the Japan International Cooperation Agency, the Manila Times reported.

Manila will pay 1.4% on the 30-year loan, the report said.

The money will be used to support the government's fiscal sustainability, said bank governor Amando Tetangco.

Manila projects a 2009 budget deficit of PHP 177.2 billion or 2.2% of GDP.

The peso was seen trading at 48.275 to the dollar.

In Indonesia, the central bank announced a prediction that non-energy exports will fall by 28% in 2009, the Jakarta Post reported.

Already in January, exports fell by 36% compared to the same period of 2008.

Still, the bank is expecting the country's GDP to grow by 4% in 2009.

The rupiah traded at 11,800 to the dollar.

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