Emerging markets mixed; investors eager for supply; high-grade paper eyed; market tone steady

By Aaron Hochman-Zimmerman

New York, April 15 - Emerging markets held on or stepped slightly lower on Wednesday, but investors were anxious to see how the new deals would perform.

Emerging markets took a cue from the tone in the overall market, which was confident as stocks in the United States fought higher.

In the credit world, "the main area is still the high grade," a strategist said. "There is a lot of flow into the high grade."

"It is my personal opinion that a lot of these are former equity traders switching to good yielding, reasonably rated bonds," he said, as it "becomes harder and harder to earn 8% to 9% in stocks."

With many high-grade names an investor can earn similar returns "in no time," he said, although now the new interest has left the credit market "overdone."

Even so, more supply was on the way on Wednesday.

Indonesia and the Industrial Bank of Korea both announced talk for benchmark deals while more speculation swirled around Brazil's telecom Telemar Norte Leste SA and Russia's OAO Gazprom.

In the secondary market, issues moved only slightly, but without much obvious impetus. Venezuela continued a strong march upward. Its bonds due 2027 were seen at 64 bid.

Equities angled up by the end of the session as volatility managed to shed 1.50 to close at 36.17, according to the VIX index. The index is an often used yardstick of market volatility.

LatAm wider, tone strong

Most Latin American issues traded wider by 2 basis points to 7 bps, a syndicate official said, but the optimism prevailed.

Chile and particularly Venezuela outperformed as they tightened by 20 bps and 40 bps, respectively.

The Chilean bonds due 2013 were seen at 106.7 bid, while the Venezuelan government bonds due 2027 were spotted at 64 bid.

Meanwhile in Brazil, the Telemar deal "I like, personally," a strategist said.

"It's quite interesting." Even in the absence of price talk "the books are built quite nicely," he said.

The bonds will create a good opportunity if they come at yields of 9¾% to 10% where they are expected, he said.

A syndicate official not affiliated with the deal said the book was rumored to be at $1 billion.

Also in Brazil, "there is a rumor," a strategist said, that Grupo Bertin may try to bring a bond.

The agriculture and energy firm may "want to place a five-year bond, but I wouldn't know where they should price," he said, suggesting it would be too costly for Bertin.

"It's not doable at the moment," he said.

The 11% Brazilian sovereigns due 2040 were quoted at 129.3 bid.

Also in Latin America, Argentina's 8.28% discount bonds due 2033 were seen at 29.25 bid.

Colombia retap tightens

Elsewhere in the category, Colombia priced a $1 billion reopening of its 7 3/8% notes due 2019 at par to yield 7 3/8% on Tuesday, which tightened nearly 30 bps on Wednesday.

"So that's a good sign," a syndicate official said.

The cash price is better at 102.4 bid, but the tightening was likely the settling of a new issue premium, he said.

The retap came within the talk of 7½% to 7 5/8%.

Asia primary adds two

"The recent deals have gone very well," a trader said, as the market heard of two new offerings.

The news has been "fairly well absorbed," he said.

The Republic of Indonesia announced talk in the 9¼% area for a dollar-denominated benchmark-sized five-year unsecured sukuk (Ba3/BB-/BB).

Barclays, HSBC and Standard Chartered will act as bookrunners for the deal.

The offer represents Indonesia's first dollar-denominated global sukuk.

"It's a nice coupon, but people refrain from buying sukuk bonds," a strategist said.

"It will go well," he said, but "you don't have the Americans in there."

Without a Rule 144A tranche the issue will likely remain a local and illiquid instrument, he said.

However, there "will still be significant demand out of the Middle East, which will push that in a bit," the trader said about the talk in the 9¼% area.

The Indonesian conventional bonds due 2014 were quoted at 109 bid, 110 offered.

Also, the Industrial Bank of Korea announced talk of mid-swaps plus 525 bps to 550 bps for its dollar-denominated benchmark-sized five-year bonds (A2/A/A+).

The IBK deal is also expected by some to "come tighter than that," the trader said.

Barclays, Citigroup, Merrill Lynch and Morgan Stanley will act as bookrunners for the deal.

The bonds are expected to price on Thursday in New York.

The Industrial Bank of Korea is a Seoul-based retail and commercial bank.

South Korea's five-year CDS was seen trading at 285 bps mid.

'Value to be found' in Asia

In trading, Asia held strong but has been "underperforming," a trader said.

Especially on the corporate side, there is "value to be found," he said.

China's Hutchison Whampoa Ltd. priced a $1.5 billion 10-year bond to yield Treasuries plus 475 bps on April 6, he said, but it has still been trading near 470 bps over Treasuries.

Meanwhile on the sovereign side, in the Philippines, overseas workers were able to send home $1.3 billion in February, according to the central bank.

The figure is 4.9% higher than February 2008 and only nominally higher than in January.

"Remittances have been holding up as deployment of overseas Filipino workers has risen during the first two months of the year while the increase in the number of reported layoffs has slowed down," bank governor Amando Tetangco said in a statement.

The United States, Saudi Arabia and Canada were the top three sources of remittances.

The Philippine government bonds due 2030 were quoted at 120.5 bid, 122 offered.

Also in Indonesia, the Finance Ministry relaxed its deadline for reporting goods for re-export to two years from one year, the Jakarta Post reported.

The Customs and Excise Office said the plan is intended to encourage exports.

Emerging Europe retreats

Emerging Europe slipped lower as investors' eyes strayed across to high-grade paper.

High-grader Gazprom's $2 billion deal is expected around 9¼% to 9½%, a strategist said, which is "not a steal, but it will go."

Gazprom began a roadshow for the offer on Monday.

Elsewhere in Russia, the government will support the state's nuclear firm Rosatom with an additional $1.5 billion from the budget, prime minister Vladimir Putin said at a press conference, according to the RIA Novosti News Agency.

Putin also said that he expects 25% to 30% of Russia's power to be nuclear-derived.

"These are difficult, but realistic tasks," Putin said.

The Russian government bonds due 2030 slipped 1 point to 97.5 bid, 99.5 offered.

In Ukraine, president Viktor Yushchenko announced that he will take part in both the upcoming presidential and parliamentary elections, reports said.

"I will take part in both elections," he said, in order to see through his commitments to Ukraine set forth during the 2005 Orange Revolution.

His Orange Revolution ally, prime minister Yulia Timoshenko, will likely be his chief opponent in the contests currently scheduled for Oct. 25.

Also in emerging Europe, Turkey's statistics reporting agency announced unemployment of 15.5% for the first quarter.

In December, the figure was at 13.6%.

The government now predicts a rate of 13.5% for 2009.

The lira was seen trading at 1.599 to the dollar.

The Turkish sovereign bonds due 2030 added 0.25 point to 145 bid, 145.5 offered.

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