Emerging markets pull back; market tone still strong; spreads flat; Croatia offering eyed

By Aaron Hochman-Zimmerman

New York, May 8 - Emerging markets eased back on Friday from another strong week of rallying.

Rather than press into an overbought situation, many investors were happy to skim profits and calmly slip into the weekend.

The halt in the momentum did not drag on sentiment, which remained high as many in the market have been expecting and calling for a correction for weeks.

Still, as the pace looks to take a more measured tempo, issues have been wrapped "back to levels seen summer last year, which are pretty damned tight really," a trader said.

One of the week's leaders, Argentina, found a way to add more to its total as the discount bonds due 2033 added ¾ point on Friday and 10½ points since Monday's open.

Primary action was quiet on Friday while the market waited for Croatia's expected €750 million issue.

In the major markets, equities jumped on better-than-expected employment numbers while volatility sank 1.39 to close at 32.05, according to the VIX index. The index is a frequently used yardstick of market volatility.

The emerging markets sector was seen unchanged at a spread of 464 basis points, 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 'taking a breather'

Emerging Europe saw some investors take profits and ease off of the rally that had sustained itself throughout the week, a trader said.

The market is "taking a breather," he said, with most levels unchanged.

Still, most of the week's successes "have all been supported," he said.

Issues mostly moved in concert, but Hungary made the biggest move of the week, he said.

The five-year CDS tightened nearly 70 bps on Thursday but eased back to 315 bps bid on Friday.

Romania and Bulgaria also saw more buyers, he said. "People are putting cash to work."

At some point things will only have one way to go, he said. "I've got to question the logic of someone hitting the Slovenia five-year," he said, as an example.

If a number of issues go wider "you're down 40 to 50 bps," he said.

However, "Poland is still quite far off its tights," he said.

Elsewhere in the category, Russia's bonds due 2030 added ¼ point to 100 3/8 bid, 100½ offered, while Turkey's bonds also due 2030 improved by ¾ point to 150 bid, 152 offered.

In the coming week Croatia is expected to sell a €750 million issue via BNP Paribas, Deutsche Bank and Unicredit.

The Croatia bonds due 2011 were seen at 102¼ bid, 103¼ offered, while the bonds due 2014 were spotted at 95 bid, 96½ offered.

Profit taking in LatAm

Latin America also saw some profit taking, a strategist said.

"The volatility will continue, but there is a very nice underlying tone to the market," he said.

The coming week will probably continue to behave more in the style of a correction than a rally, he said.

"All of the good news is already in the market," he said.

Argentina was a clear leader through the strong sessions, he said.

The 8.28% Argentine discount bonds due 2033 were better by ¾ point to 38¾ bid, 39¾ offered.

The bonds had seen a high of 42 bid during the rally.

In Venezuela, president Hugo Chavez began the process of nationalizing oil service firms, reports said.

Meanwhile, the recently successful 9¼% bonds due 2027 eased back 2 points to 66½ bid, 67 offered.

"Overall, Venezuela continuing to steal assets can only help oil prices," a trader said.

"They are the fifth or sixth largest oil producer, I think, and falling fast," he said.

Oil was seen trading at more than $58 per barrel.

Also in Latin America, Brazil's retapped 5 7/8% bonds due 2019 were lower by just ½ point at 100 bid, 100¾ offered. The spread tightened by 15 bps.

Asia sees some selling

Asia stepped back and booked some of the profits that the week brought to the sector.

Meanwhile in the Philippines, the central bank noted that "consumption slowed down, capital formation declined and the growth of exports and imports contracted markedly," as inflation fell to 4.8% in April, down from 6.4% in March.

The new numbers bring the average figure for 2009 down to 6.4% from 6.9%.

"Business and consumer surveys indicated continued bearish outlook for the first and second quarters," the report added.

The peso was seen trading at 46.945 to the dollar.

The Philippine sovereign bonds due 2030 were seen lower by 1 point at 125¼ bid, 125¾ offered.

In Indonesia, the sharply improved bonds due 2019 were seen at 127¾ bid, 128¼ offered.

Also, Pakistan's air force has pounded militant targets in the Swat Valley in keeping with prime minister Yousaf Raza Gilani's promise to fully commit his government against the extremist threat.

In the early days of the conflict, the U.N. reports 200,000 to 300,000 people in the region displaced by the fighting.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.