Emerging markets drift, flat; RasGas talks benchmark; spreads tighter as Treasuries sink

By Aaron Hochman-Zimmerman

New York, July 14 - Emerging markets were mixed to slightly stronger on Tuesday as Latin America marginally lagged the other categories.

Thin volumes made the market malleable and difficult to gauge.

"It's push-aroundable," a trader said as local players were able to exert their influence amid the quiet.

Korea Electric Power Corp. and the Philippines improved as Asia calmed from new deal furor.

Meanwhile, the Middle East looked strong in the emerging European time zone even as Qatar's RasGas talked its new benchmark deal.

The major markets were light on leadership, although volatility was cut by 1.29 to end at 25.02, according to the VIX index. The index is a common measure of market volatility.

Prices remained stable, resulting in tighter spreads as Treasuries backed up. Emerging markets tightened 13 basis points to a spread of 431 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.

RasGas talks $1.3 billion

RasGas talked the three tranches of its $1.3 billion offering of three-, five- and 10-year senior secured bonds (Aa2/A/A+) on Tuesday.

The $500 million three-year bonds were talked at Treasuries plus low to mid 300 bps with a yield of 4.30%.

The $1.15 billion five-year bonds were talked at Treasuries plus mid 300 bps with a yield of 5¼%.

The $615 million 10-year bonds were talked at mid to high 300 bps with a yield of 6.35%.

Citigroup, Credit Suisse and HSBC are bookrunners for the deal.

RasGas is a Doha, Qatar-based government run energy firm.

Emerging Europe slowly better

Meanwhile, emerging Europe was "a bit busier today than yesterday," a London-based trader said on Tuesday, although "there's not a huge amount going on," he said.

Some of the Middle East names were better, he said, listing: Qatar's Qtel and UAE's Aldar Properties PJSC and Mubadala Development Co.

In Russia, the government hopes to see economic improvement by 2010, prime minister Vladimir Putin said, according to the Itar-Tass News Agency.

"There are also grounds to expect that the 'engine' of our economy will start gradually gaining momentum in 2010," he said.

Putin, however, did not make any specific target figures public.

"Of course, it would be thoughtless to name specific dates for getting out of the crisis, but already now we can see some very timid but positive tendencies in some sectors and feel the results of anti-crisis measures," he said.

The Russian government bonds due 2030 were seen at 98½ bid, 98 5/8 offered.

Pipeline possibilities

The Nabucco pipeline, which will stretch from the Caspian Sea to the heart of the European Union, with Turkey as its main conduit, gained more momentum on Monday when Ankara along with Austria, Bulgaria, Hungary and Romania and signed agreements to further the project.

Still, Turkey won a better deal than even it had bargained for, said E.U. energy commissioner Andris Piebalgs.

The pumping mechanism which will be built into the pipeline give Turkey extra assurance that it will be protected in a time of crisis.

"The agreement puts in place the physical infrastructure for that to be ensured and then says that Turkey and the E.U. member states involved will respect commercial agreements that will supply gas to Turkey in the event of a crisis," he said. "The physical infrastructure consists of pumps that work in both directions."

The Turkish sovereign bonds due 2030 were quoted at 153 bid, 154 offered.

Even Ukraine, which is intentionally bypassed by both Nabucco and its competing Russian-supported proposal, South Stream, expressed enthusiasm over Nabucco.

The new pipeline will diversify suppliers as well as influence over the region's energy trade, said Andriy Honcharuk, deputy head of the presidential secretariat.

"The signing of this agreement will lead to geopolitical shifts in the region and will allow the diversification of supply routes not only for consumers but also for the suppliers of energy resources, Azerbaijan and Turkmenistan in the first place, and possibly other states of the Caspian region and the Middle East," he said according to the Kyiv Post.

The Ukrainian bonds due 2016 were spotted at 69 bid, 70 offered.

Asia calms, firms

Asia calmed after deal-driven action pushed levels lower on Monday, a trader said.

The tone on Monday "wasn't great," he said, but local-market traders showed up in support of the new deals from Kepco and the Philippines.

"Asia came in over night and took them both higher and tighter," he said.

The Kepco bonds were seen as wide as 365 bps bid, but by Tuesday's close were stable at 345 bps bid, 340 bps offered.

In the Philippines, the nation's infrastructure was ranked 56 of 57 countries reviewed by the Asian Institute of Management policy center, according to the Manila Times.

In total, the Philippines placed 43rd of the 57 in the study's "competitiveness factors," the report said.

The new Philippine bonds due 2020 were better by 3/8 point at 100 bid, 100¼ offered, while the Philippine sovereign bonds due 2030 were better by 1 point at 114 bid, 115 offered.

Elsewhere, in Indonesia, the government is reconsidering whether or not to issue a $1.5 billion samurai bond connected to a standby facility of the same amount from the Japan Bank for International Cooperation, according to the Jakarta Post.

The government has backing from Australia, the World Bank and the Asian Development Bank and will likely fill gaps with a local debt issue, said the Finance Ministry's director general of debt management Rahmat Waluyanto.

The Indonesian government bonds due 2019 "have been performing very well," the trader said.

The bonds were seen at 130 bid, 131½ offered.

Lazy LatAm eases

Latin America moved at a crawl on Tuesday, said Enrique Alvarez, a Latin America debt strategist at think tank IDEAglobal.

The market was "very U.S. dependent," he said, with a "negative drift in Treasuries which forced a slight pullback in prices to match the Treasury direction."

The only useful chore was to "read the tea leaves as far as earnings are concerned," he said, but as nearly nothing was happening in the United States "it was even lazier south of the border."

"Venezuela was a little soft on the crude oil story," he said.

Light sweet crude was seen trading as low as $60 per barrel.

The 9¼% Venezuelan sovereigns due 2027 fell ½ point to 65 bid, 66 1/8 offered.

Brazil, which made new highs recently, was "holding at the highs," he said, making it the most significant player in the category.

The 7 1/8% Brazilian government bonds due 2019 improved by 0.2 point to 101 3/8 bid, 102 1/8 offered.

In Argentina, the 8.28% discount bonds due 2033 added 1 point to 51¼ bid, 52¼ offered.

Also, the newly retapped Peru bonds due 2025 were seen off by 3/8 point at 105 bid, 106¼ offered.

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