Emerging markets mixed to lower; Abu Dhabi benchmark offering expected midweek; spreads slip wider

By Aaron Hochman-Zimmerman

New York, March 30 - Emerging market credit absorbed the residual shocks that passed through equities as markets were pounded around the world.

Investors expected a test of the legitimacy of last week's rally, which allowed levels to stay largely unchanged on Monday.

Accounts kept a tight grip on cash going into the end of the quarter as questions lingered about which direction the market would take going forward.

"Nobody knows this week," a trader said.

"There's still lots of money out there," he said, but "they don't know where to go."

The market has "no direction," he said.

Some hoped deals from Abu Dhabi and Qatar might offer a push toward increased risk, but the deals were only beginning to materialize.

Abu Dhabi's benchmark offering is expected to price midweek, but news about Qatar was less forthcoming.

"We're advising people to wait," he said about moving any money across the market.

Volatility jumped back up by 4.50 to close at 45.54, according to the VIX index. The index is an often used gauge of market volatility.

Abu Dhabi talks benchmark

The Emirate of Abu Dhabi in the United Arab Emirates plans to issue a dollar-denominated benchmark-sized two-tranche bond (Aa2/AA/AA).

The five- and 10-year tranches were talked in the Treasuries plus 425 basis points area and the Treasuries plus 437.5 bps area, respectively.

The bonds are expected to price midweek.

Citigroup, Deutsche Bank and JPMorgan will act as bookrunners for the deal.

"The market is in a good position to bring new deals into the market," a strategist said.

Recent deals have been "coming cheap to the secondary market," he said, but it is "the only way to place [a deal]."

Equities drag on emerging Europe

Emerging Europe saw the worst of the effects from the day's equity thrashing.

Levels dropped and spreads widened, but the damage was only limited as most of the economy's ire was directed at stocks and currencies.

In Turkey, the ruling AK Party of prime minister Recep Tayyip Erdogan won a sound victory in Sunday's parliamentary elections, but support for the party fell by nearly 8% since the 2007 general elections.

Investors had been waiting for the election to see Ankara resume talks with the International Monetary Fund in order to work toward an arrangement to satisfy Turkey's nearly $30 billion in external financing needs.

As the results were announced, it seemed that the weakening of Erdogan's party would weaken Turkey's financial footing as well.

Local stocks fell along with markets around the world and the lira was seen trading at 1.6845 to the dollar.

The Turkish sovereign bonds due 2030 were off by 1.75 points to 133.35 bid, 133.85 offered.

Elsewhere in emerging Europe, over the weekend Russia announced that it will not hold any further talks with Ukraine for an indefinite amount of time, reports said.

The reason for the hiatus was also left indefinite.

The Russian government bonds due 2030 were "all over the place," a trader said, but were lower by 1.75 points to 93 bid, 94.375 offered.

The Ukrainian bonds were also difficult to price, the trader said, but they were spotted close to 42.5 bid, 44.5 offered.

LatAm stretches wider

"It's been a quiet Monday; I haven't seen really much flow," a strategist said about the market, particularly in Latin America, where most credits were about 10 bps to 15 bps wider.

Meanwhile the S&P 500 index fell nearly 4% into New York's afternoon.

"It's a significant number," he said about the equity drop, "especially when we're trying to build on every single positive."

"It's a rock on the road to recuperation," he said.

In Argentina, the Buenos Aires city government announced that it will make "the best possible offer" to stave off a 48-hour strike by the teachers' union, the Buenos Aires Herald reported.

The teachers were demanding a bigger wage increase than the city offered.

The city hoped to prevent the further loss of school days, but said its budget is limited.

The 8.28% Argentine discount bonds due 2033 improved by 0.5 point to 27 bid, 28 offered.

Meanwhile, Venezuela continued to underperform Argentina after a 4 - 0 loss in Saturday's World Cup qualifier in Buenos Aires.

Oil prices also fell on Monday to trade as low as $48 per barrel.

The 9¼% Venezuelan sovereign bonds due 2027 were seen unchanged at 57 bid, 57.5 offered.

In Brazil, the 11% Brazilian bonds due 2040 were quoted at 126 bid, 126.5 offered.

Asia holds ground on shaky open

Asia held steady on Monday, but generally "still seems to outperform," a trader said.

Also in the category, South Korea's Hana Bank began a roadshow for a benchmark bond offering on Monday.

In trading, the Philippines' bonds stepped back as the week opened to a sharp drop in global equities.

The Philippine government bonds due 2030 stepped back by 0.5 point to 117.5 bid, 118 offered.

Elsewhere in Indonesia, the national chamber of commerce asked the government to bolster its efforts to rescue the economy after the central bank's senior deputy governor Miranda Goeltom reforecast economic growth from 3% to 4% from an earlier prediction of 4% to 5%.

"The economy is not only declining. The growth quality may not be so good, with increases in the number of people unemployed and living in poverty," said the head of the chamber of commerce Bambang Soesatyo, according to the Jakarta Post.

The rupiah was seen trading at 11,535 to the dollar.

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