Emerging markets flat to lower; primary still eyes new deals; Indonesia falls on supply fear

By Aaron Hochman-Zimmerman

New York, May 14 - Emerging markets dipped early in trading Thursday, but mostly climbed back to recoup their losses.

"Look, we needed a break," a buyside source said. "It was too tiresome to watch these things go up."

Still, "there continues to be more inflows," the buysider said, "little amounts put to work every day."

Inflows to emerging market bond funds for the week ending Wednesday totaled $325 million, according to data compiled by EPFR Global.

Meanwhile, Indonesia slipped slightly as its energy firm PT PLN explored a new deal on a non-deal roadshow.

Emerging Europe's pending sovereign issues from Croatia and South Africa waited again as South Africa is now expected next week.

In trading, levels were stable even in Venezuela where investors were nervous over a new round of government nationalizations.

From the major markets, a modest success for U.S. equities was able to slash volatility by 2.28 to close at 31.37, according to the VIX index. The index is a common measure of market volatility.

As a sector, emerging markets slipped by 2 basis points to a spread of 506 bps, according to JPMorgan's EMBI+. The EMBI+ determines the amount of extra yield investors will demand to hold assets in emerging market debt.

Emerging Europe's primary holds still

Emerging Europe hosts the prospective sovereign deals in the market, but showed no signs of opening the doors for the offerings on Thursday.

Croatia's €750 million deal will wait another day as sources detected no movement from the offering banks, BNP Paribas, Deutsche Bank and Unicredit.

South Africa's dollar-denominated benchmark-sized bonds via Barclays and JPMorgan also saw no forward motion, but the deal is believed to be next week's business, a buysider said.

The South African bonds due 2022 were spotted at 91½ bid, 93 offered.

Emerging Europe trades lower, recovers

At the trading desks, emerging Europe "opened weak with equities and continued to trade lower and wider with very low volumes," a London-based trader said.

However, as London trading approached its last hour, the market seemed to turn around with higher prices and tighter spreads, he said. U.S. equities, he noted, provided some support.

No leaders broke out of the pack, "it's been deadly dull to be honest," he said.

Still, the benchmark credits in Russia and Turkey made up most of their losses to finish only a few basis points wider, he said.

The Russian bonds due 2030 added ½ point to 100 1/8 bid, 100¼ offered, while the Turkish bonds due 2030 were seen at 146¾ bid, 147¾ offered.

In Ukraine, the Odessa-Brody gas pipeline will be put into "forward mode" by president Viktor Yushchenko, according to Yushchenko's official web site.

The pipeline is intended to bring Caspian Sea oil north to Poland and on to other European Union nations bypassing Russia.

Indonesia dragged by primary

In the Asian market, a non-deal roadshow from the energy firm PT PLN via Barclays and UBS has hit Indonesia harder than the news of a definitive deal from the Philippines' Napocor, a trader said.

Indonesia "backed off 3 points," he said, but recovered most of its losses.

"There have been three or four buyers for every seller in Indonesia," he said.

"The Philippines held in pretty well anyway," he said.

The Philippine government bonds due 2030 were quoted at 123½ bid, 124½ offered.

Meanwhile, Pakistan's bonds due 2017 were spotted at 58 bid, 62 offered.

The rest of Asia saw "quite a lot of resilience, actually," a trader said.

"It was looking soft yesterday and quite mixed overnight," he said.

"As long as cash is still looking to go to work in the market, it will put a cap on spread widening," he said.

Also in Indonesia, the Culture and Tourism Ministry is in negotiations to have its logo appear on the jerseys of the English football club Manchester United during its tour of the region in July.

The current price of $46.3 million is "way too expensive," said Sapta Nirwandar, the ministry's marketing director, according to the Jakarta Post.

On the tour, Manchester United will visit China, Indonesia, Malaysia and South Korea and has a match against the Indonesian All-Star club scheduled for July 20.

The Premier League side currently wears the logo of damaged insurance giant AIG.

The Indonesian sovereign bonds due 2019 were seen at 122½ bid, 123½ offered.

LatAm inches lower

In Latin America, levels dropped slightly as spreads across emerging markets were wider.

Losses were limited in what a buysider called a "consolidation," but "by no means a full sell-off."

In recent sessions, "Venezuela sold off quite a bit with the whole PDVSA news," regarding nationalizations in the oil sector, the buysider said.

Meanwhile on Thursday, president Hugo Chavez set the date of May 22 to nationalize Banco de Venezuela, a subsidiary of Santander Investments, reports said.

The 9¼% Venezuelan sovereign bonds due 2027 were better by nearly 1 point at 64 mid.

Fellow high-beta Argentina added 0.35 point to its 8.28% discount bonds due 2033 to 34.2 bid, 36.2 offered.

In Brazil, the 11% bonds due 2040 were quoted at 130¾ mid.

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