Emerging markets 'grinding tighter'; Pemex sells £350 million bonds; Venezuela recovering

By Aaron Hochman-Zimmerman

New York, May 20 - Emerging markets were improved across all categories on Wednesday as the sector was "slowly grinding tighter," a buyside source said.

"Small, but consistent flows" of new money continued to support higher levels, the buysider said.

Still, at center stage was Mexico's Petroleos Mexicanos SAB de CV, which priced a rare sterling deal in Latin America.

Mexico's national oil firm printed £350 million 13-year bonds in a fast deal to yield Gilts plus 450 basis points.

In trading, "the higher yielding countries are getting most of the attraction," the buysider said.

"Venezuela recovered after the headline news," the buysider said about the recent round of nationalizations.

The bonds due 2027 added 0.6 point.

Meanwhile in the major markets, equities sank into the afternoon, but volatility remained below 30.00 as it added 0.23 to close the day at 29.03, according to the VIX index. The index is an often used gauge of market volatility.

As a sector, emerging markets was seen wider by 2 bps at a spread of 479 bps, according to JPMorgan's EMBI+ index. The EMBI+ calculates the amount of extra yield investors will demand to hold assets in emerging market debt.

Pemex prices by pound

Pemex priced £350 million 13-year bonds at 99.406 with a coupon of 8¼% at a spread of Gilts plus 450 bps (Baa1/BBB+/).

Barclays and Deutsche Bank acted as bookrunners for the deal.

Pemex also has a $500 million in peso-denominated floating-rate and fixed-rate bonds on the calendar. The seven-year fixed-rate portion is expected around Mbono plus 160 bps.

Pemex is a Mexico City-based government run oil firm.

"This is the first Latin American deal in sterling in six or seven years, so anything is good," a syndicate official said, but the deal performed well and quickly.

The bonds found an offer book of nearly £800 million within about six hours, he said.

Mexico's 5.95% bonds due 2019 added 0.3 point to 102 bid.

LatAm trades higher

Latin America was broadly improved on Wednesday even without the support of equities.

Ecuador's 9 3/8% bonds due 2015 inexplicably remained at 45 bid, a syndicate official said.

Argentina's 8.28% discount bonds due 2033 posted a strong day by adding 2 points to 39 bid, 39½ offered.

In Venezuela, oil prices topped $62 per barrel and helped support bond levels.

The 9¼% Venezuelan sovereigns due 2027 added 0.6 point to 54.1 bid, 54.7 offered.

Also in Brazil, the 7 1/8% Brazilian bonds due 2019 crept up by 0.2 point to 101 bid, 101.7 offered.

Meanwhile in Colombia, the Senate voted to hold a popular referendum to determine if the people would change the constitution to allow president Alvaro Uribe could seek a third term in 2010.

It is widely believed that such a measure would pass.

Emerging Europe, South Africa stronger

Emerging Europe traded well on Wednesday; however, on the primary side, Croatia's €750 million bonds expected via BNP Paribas, Deutsche Bank and Unicredit were held back for another day, a syndicate official said.

In South Africa, the new 6 7/8% bonds due 2019 were seen trading at 101½ bid, 101.6 offered, after pricing at 99.189 on Tuesday.

Meanwhile in Russia, Thursday's summit between Moscow and the European Union will focus heavily on energy issues, according to Mikhail Margelov, chairman of the Russian upper house international affairs committee, the RIA Novosti News Agency reported.

The sides will likely see "predictable difficulties in negotiations on energy issues," he said.

Talks will also touch on the E.U.'s support for Ukraine, which has been considered for E.U. membership, but is currently a vital link for gas transport and is in debt renegotiations with Russia.

"Internal political cataclysms in Ukraine are influencing its negotiations with, while Ukraine's debt is growing," said Sergei Prikhodko, aide to president Dmitry Medvedev, according to the Kyiv Post.

The Russian sovereign bonds due 2030 added ¼ point to 101¼ bid.

Elsewhere, Turkey's government bonds due 2030 jumped 1½ points to 104¼ bid.

Asia, Psalm lifted

Asia held its strength, although the Philippines saw a mild dip the day after the pricing of the $1 billion 10-year bonds by its Power Sector Assets and Liabilities Management Corp.

The 7¼% Psalm bonds improved by 1½ points to 100 5/8 bid, 101½ offered, while the Philippine sovereign bonds due 2030 slipped ½ point to 123½ bid, 124½ offered.

Also in the Philippines, the government decided not to retire any of its debt in the first quarter as a weak peso made advanced payments disadvantageous, the Manila Times reported.

However, the private sector made $16.8 million in early debt payments, the report said.

In the first quarter of 2008, a strong peso inspired $169.3 million in early payments from the government and $298.4 million from the private sector.

The peso was seen trading at 47.175 to the dollar.

In Indonesia, president Susilo Bambang Yudhoyono spoke at a business summit where he denied that the government is "neo-liberalist," the Jakarta Post reported.

"People are raving about neo liberalism but they don't actually know what it is," he said in the report.

Yudhoyono, who is running for re-election, insisted that his policies have been pro-growth, without disregarding the needs of the disadvantaged.

If elected, Yudhoyono said his policies could deliver an economic growth rate of 7%, he said.

The Indonesian bonds due 2019 followed Tuesday's 3-point gain with another addition of ½ point to 125½ bid, 126½ offered.

In Pakistan, the military continued its sweeps of Buner in the Swat Valley where the government has not completely wrested control from the Taliban.

The United Nations estimates that the conflict has forced 1.5 million people from their homes and into refugee camps; however, those who have stayed are tormented by the fighting and power outages, reports said.

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