Emerging market credits climb on Wall Street gains; Russia, Venezuela miss out; spreads wrap in

By Aaron Hochman-Zimmerman

New York, March 23 - Emerging markets were driven along by U.S. equities in typical fashion.

Still, even some of the highly watched credits in Russia and Venezuela missed out on the day's rally as internal finances obliged investors to seek out other opportunities.

The Russian bonds due 2030 were lower by 0.3 point, while across the Black Sea Turkey's bonds continued to bounce, with the 2030 bonds gaining 1 point.

On the primary side, speculation about corporate issues continued to buzz the loudest in Brazil and South Korea, but no solid offers were heard over the din.

Volatility eased through the session and ended lower by 2.66 to 43.23, according to the VIX index. The index is an often used gauge of market volatility.

As the major markets rallied, emerging markets tightened by 16 basis points to a spread of 624 bps, according to JPMorgan's EMBI+ index. The EMBI+ estimates the amount of extra yield investors will demand to hold assets in emerging market debt.

Emerging Europe mixed

Emerging Europe performed well but was scraped by headlines surrounding Hungary's embattled prime minister Ferenc Gyurcsany as well as a Wall Street Journal report that created mild, but snowballing alarm.

The Wall Street Journal finished an investigation of the default on $250 million in bonds by the Finance Leasing Co.

The otherwise inconsequential default was magnified by its status as the first Russian state-owned firm to default on foreign debt since the 1998 crisis, a buysider said.

The events of the story are old but still may have contributed to Russia's lackluster showing on Monday, the buysider said.

Meanwhile, Russia's state oil firm OAO Gazprom announced that fixing the gas transport system in Ukraine may cost nearly $16 billion rather than the $3 billion some had anticipated, said Gazprom deputy chairman Valery Golubev, according to the RIA Novosti News Agency.

Moscow also complained that it was muscled out of price talks by the European Commission and Kiev government.

"While recognizing the urgency of the task to modernize and expressing a readiness for any format - bilateral or trilateral - to participate in this work, we were forced to express our bewilderment with the fact that Russia was practically excluded from the discussion of this issue, which is very important for all of us," said energy minister Sergei Shmatko in the report.

Kiev responded to the charge by asserting that it expects Russia to be included in the process.

"Ukraine, just like the European Union, has the definite intention to attract Russia as a partner in this large reconstruction and modernization program," Ukraine prime minister Yulia Tymoshenko said.

The Russian government bonds due 2030 slipped 0.3 point to 93.7 bid, 93.8 offered.

Also in Turkey, the financial sector claimed a 1.6 billion lira profit in January, or a 22.8% increase over January of 2008, the Hurriyet Daily News reported.

Some believe the credit for the success is owed to the central bank for the 625 bps total rate cuts since November, the report said.

The Turkish sovereign bonds due 2030 added 1 point to 134.8 bid, 135 offered.

Elsewhere in the emerging European time zone, the Emirate of Abu Dhabi in the United Arab Emirates will host a roadshow presentation on March 27 in Boston and March 30 in New York along with JPMorgan, according to a market source.

"Supposedly Qatar is also looking to bring a deal," a source said.

Kazkommerts sets buyback

Kazakhstan's JSC Kazkommertsbank has begun a modified Dutch auction tender offer to purchase up to $175 million principal amount of floating-rate notes issued by Kazkommerts DPR Co., according to a bank news release.

The bank will offer up 82 cents to 92 cents per dollar of outstanding debt, a press release said.

Included in the offer are Kazkommerts DPR's $200 million series 2005A floaters due 2012, $50 million series 2005B floaters due 2012, $100 million series 2006A floaters due 2013, $100 million series 2006B floaters due 2013, $150 million series 2007A floaters due 2017, $250 million series 2007B floaters due 2017 and $100 million series 2007C floaters due 2017.

LatAm follows equity trail

In Latin America, investors saw more of the same, light volumes which followed equities, but certainly the day carried a better sentiment, a strategist said.

People seemed to approve of U.S. treasury secretary Tim Geithner and the Obama administration as they began to disclose the plan to buy toxic assets.

Some showed varying degrees of optimism toward a full-fledged reopening of the primary market, but the strategist noted that certain corporate names were put through the rumor mill.

"I hear things," the strategist said about Brazil's Odebrecht SA, Gerdau SA and Companhia Ferroviaria do Nordeste SA.

"Some of the banks... but they won't issue at these levels," the strategist said.

None of them have seriously taken hold yet and are likely to wait out the rally fever pitch for "continued stability," the strategist added.

In Argentina, roadblocks continued as farmers railed against the government and demanded that export taxes be lifted on soybeans.

Many passenger cars were allowed through the blockades, but farm goods, including beef and grains, were halted, according to the Buenos Aires Herald.

Also in Venezuela, president Hugo Chavez presented his new fiscal package, a buysider said, but it "was disappointing" without any currency devaluation.

The disappointment was strong enough that Venezuela's bonds were "selling off a bit," despite the broader rally, the buysider said.

Chavez slashed federal spending by 6.7% or $5 billion as it became clear that the modest upticks in oil prices would not push prices to a level which would sustain the budget.

The new budget will be predicated on $40-per-barrel oil rather than the original $60-per-barrel figures.

Light sweet crude traded as high as $54 per barrel.

The 9¼% Venezuelan sovereigns due 2027 managed to creep up by 0.2 point to 57.5 bid.

Asia presses higher

Asian markets performed well along with another Washington, D.C.-inspired rally on Wall Street.

In Indonesia, the central bank said it will not leave its currency defenseless against the dollar during this time of weakening global demand for exports.

However, any intervention "should be done carefully," deputy governor Hartadi Sarwono said, according to the Jakarta Post, as "there is no standard."

"With a depreciation, yes exports will be cheaper; but the exposure of companies to overseas debts will also be bigger. These need to be considered," he told reporters.

The rupiah was seen trading at 11,440 to the dollar.

The Philippines also had a positive day on the cash side.

The bonds due 2030 were quoted at 116.5 bid.

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