Emerging markets drift on thin volumes; TDIC prices $1 billion; 'August doldrums' begin early

By Aaron Hochman-Zimmerman

New York, June 25 - Emerging markets ground lower over slight volumes on Thursday as the "August doldrums" began early, a strategist said.

Spreads were often wider on strong Treasuries, but improved equities helped the tone in the emerging world.

Still, at the current levels investors may wonder "if there is much more upside," the strategist said.

Meanwhile, during the week ended Wednesday, emerging markets bond funds managed to extend their inflow streak to 11 straight weeks as they took in a net $30 million, according to EPFR Global.

On the primary side, Abu Dhabi's Tourism Development & Investment Co. priced $1 billion of bonds at a spread of Treasuries plus 390 basis points.

Market watchers saw that the bonds were well-received and added ¾ point after pricing.

In trading, Argentina was able to improve its discount bonds ahead of Sunday's elections.

The bonds due 2033 added 2 points.

From the major markets, volatility sank by 2.69 to 26.36, according to the VIX index. The index is a common measure of market volatility.

As a sector, Treasuries pushed emerging markets wider by 6 bps to a spread of 457 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.

The EMBI global diversified index, which represents sovereigns and quasi-sovereigns, was wider by 6 bps with a spread of 473 bps.

The diversified index has a less strict liquidity rule for inclusion.

TDIC prices $1 billion

Tourism Development & Investment priced a $1 billion five-year bond (Aa2/AA/AA) at 99.668 with a coupon of 6½% and a spread of Treasuries plus 390 bps.

BNP Paribas, Citigroup, HSBC and Standard Chartered acted as bookrunners for the deal.

Tourism Development & Investment is a wholly government-owned Abu Dhabi-based real estate development firm.

After pricing, the bonds add ¾ point to trade at 100½ bid.

Also as the session came to a close in Europe, the market was still expecting a Swiss franc bond from Russia's VTB.

Emerging Europe slow, mixed

Emerging Europe was slow, with "a few bits and pieces" moving by the desks, a trader said.

Equities in London were choppy, but the S&P 500 index was still "north of 900" and "that's the important number," he said.

In Nigeria, government and Nigerian National Petroleum Corp. officials met with Russia president Dmitry Medvedev and representatives of OAO Gazprom to sign a $2.5 billion investment agreement.

The joint venture, called Nigaz, will develop Nigeria's resources, largely for export to Europe.

Nigeria has the seventh largest reserve of natural gas in the world, according to Gazprom.

The Russian government bonds due 2030 slipped ¼ point to 97¼ bid, 97½ offered.

Elsewhere, the Ukraine bonds due 2013 were quoted at 74½ bid, 76½ offered, while Turkey's sovereign bonds due 2030 added ¼ point to 151½ bid, 152½ offered.

Argentina leads LatAm

Some issues were moderately improved, even over modest volumes on Thursday.

In Argentina, many investors were happy to wait until after Sunday's legislative elections or even the end of the quarter.

Still, the 8.28% Argentine discount bonds due 2033 added 2 points to 47 bid, 47.9 offered.

In Venezuela, the government agreed to reopen diplomatic relations with the United States.

The countries expelled each other's ambassadors in September after Bolivia president Evo Morales accused the United States of attempting to orchestrate a coup against him.

Relations seemed to warm during April's Summit of the Americas where president Barack Obama shook hands and spoke directly with president Hugo Chavez.

The 9¼% Venezuelan government bonds due 2027 tacked on ½ point to 67½ bid, 67¾ offered.

In Brazil, the 11% Brazilian sovereigns due 2040 improved by 1¼ points to 129 bid, 129¼ offered.

Asia strong with equities

Asian traders took the opportunity offered by the equity market to ride credit levels higher on Thursday.

In the Philippines, the government's balance of payments surplus increased by 1.1% to $1.7 billion in the first quarter, compared to the first quarter of 2008, according to a statement from the central bank.

"The favorable outturn in the current account more than negated the reversal of the capital and financial account to a net outflow during the quarter," the bank said.

The Philippine sovereign bonds due 2030 improved 1¼ points to 122¼ bid, 124 offered.

In Indonesia, the state-run energy firm PT Pertamina will buy a 46% stake in the offshore North West Java oil and gas field from BP.

"This decision clearly stated our business focus to increase our upstream productivity, which is in line with our business strategy," said Karen Agustiawan, Pertamina chief executive officer.

The Indonesian government bonds due 2019 also took on 1¼ points to 125¼ bid, 126¼ offered.

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