Emerging markets show small rebound; VTB, TDIC on tap; bond levels trade up on light volumes

By Aaron Hochman-Zimmerman

New York, June 24 - Emerging markets continued a slow turnaround on Wednesday as spreads on credit instruments inched tighter.

The Federal Reserve meeting had little immediate effect on the market, but a mild recovery for equities helped improve the overall tone.

Meanwhile, Argentina found its footing ahead of Sunday's legislative elections as it added 1¼ points to its discount bonds due 2033.

On the primary side, the emerging European sector was expecting deals from Russia's VTB and Abu Dhabi's TDIC perhaps within the week.

From the major markets, volatility fell back below the 30.00 mark as it dropped 1.53 to close at 29.05, according to the VIX index. The index is one measure of market volatility.

Emerging Europe looks for deals

Emerging Europe traded lightly but with an upward trajectory, while in the primary market there were some winners and some losers.

Croatia Bank for Reconstruction and Development pulled its €300 million five-year bond offering (Aa3/BBB/), a trader said.

The bonds had been talked at offer at 8½% to 8¾%.

Deutsche Bank and RBS Securities were scheduled to act as bookrunners for the offering.

Books opened on Monday, and the deal was expected to price early in the week.

The Croatia Bank for Reconstruction and Development is a Zagreb, Croatia-based development lender.

The primary "is still open," according to the trader, and VTB planned to test the waters with a Swiss franc-denominated deal rumored at 9% to price Thursday.

The amount is thought to be small, but in the past "they always increased it," he said.

Another deal expected shortly will come from TDIC, which is fully owned by the tourism bureau, he said.

The AA rated firm is expected to price its five-year bonds at 6½% to 6 5/8%, he said

"It's going very well," he said about Abu Dhabi's deal. "We wouldn't buy Dubai anymore," he said. "It's falling apart."

Europeans have been leaving Dubai because they feel uncomfortable with the legal system in the emirate, he said.

Russia shrinking

In Russia, the World Bank estimates the economy will contract by 7.9% in 2009, down 2.9% from its previous report.

Still, "despite a deeper crisis at the global level and in Russia, there is light at the end of the tunnel, and we expect that the global economy and Russia will begin to recover next year," said Klaus Rohland, the bank's Russia director, in a statement.

Stimulus spending and gradually rising oil prices will help support Russia's return to growth, the bank said.

The Russian sovereigns due 2030 added 7/8 point to 97½ bid, 97¾ offered.

Ukraine's bonds due 2016 added 1 point to 66 bid, 67 offered.

Meanwhile, Turkey's government bonds due 2030 were seen unchanged at 151¼ bid, 152¼ offered.

LatAm waits for next half

In Latin America "volumes are still OK," but "people are waiting to close the quarter," a strategist said in a telephone interview as cheers could be heard for the United States soccer team's second goal against the Spanish national club.

In the primary, "I have not heard of any new deals out there," he said, but "the market is bound to have some."

Even the sovereigns may make a return in the second half, he said.

Meanwhile in Argentina, the election continued to dominate the local headlines.

The camp which favors more nationalization found another supporter in legislative candidate Francisco De Narvaez.

De Narvaez said that "certain companies that provide public services, such as water suppliers, energy and transport," should be managed by the government, according to the Buenos Aires Herald.

He objected to the takeover of Aerolineas Argentinas on the grounds that it costs the government $4 million per day, he said, but he favors the takeover of electricity firms Edesur and Edenor.

"Energy production should remain in the hands of private companies, but the supply to consumers should be managed by the state," he said in the report.

The 8.28% Argentine discount bonds due 2033 improved by 1¼ points to 45 bid, 46 offered.

Meanwhile in Venezuela the 9¼% Venezuelan government bonds due 2027 gave back 7/8 point to 67 bid, 67½ offered.

In Brazil the 11% Brazilian sovereign bonds due 2040 were quoted at 127¾ bid, 128 offered.

Asia 'slightly better'

Asia was "very quiet," on an "OK tone" on Wednesday, a trader said, with CDS and cash "slightly better."

South Korea's Shinhan Bank, which priced on Monday at 99.835, "was not going down any further," the trader said.

The bonds were quoted at 99¼ bid, 99½ offered.

In the Philippines, the government's budget deficit launched up more that 500% from January through May, the Manila Times reported.

The deficit stood at PHP 123.2 billion compared to PHP 18.8 billion at the same point in 2008.

Finance secretary Margarito Tevez said expenditures overran revenues to the tune of PHP 11.4 billion in May, in the report.

"We're still open to issuing global bonds," Teves said, but added that most of the borrowing would be done in the local market.

The Philippine government bonds due 2030 were better by 1 point at 121 bid, 122 offered.

Also in the category, Indonesia's bonds due 2019 added 1½ points to 124 bid, 125 offered.

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