Emerging markets up slightly; Asian corporates lead; new paper expected; Brazil brings add on

By Aaron Hochman-Zimmerman

New York, July 29 - Emerging markets continued higher on Wednesday, but at a slower pace than the rally which fed into a shift towards profit taking.

Trading was light amid "summer doldrums," a strategist said, but Brazil proved that risk appetite was still strong as it swiftly priced a $500 million reopening of its 7 1/8% bonds.

Asia's recent new issues performed well in the secondary despite big losses in the local equity markets.

South Korea's Woori Bank had found a comfortable trading range on Wednesday, but held onto its 50 basis point gain after pricing on Monday.

New paper also seemed ready to move, including Malaysia's Petroliam Nasional Bhd. which was still in its preliminary phases, a trader said.

Further details including talk should arrive early next week, he said.

A strategist also felt as though the pipeline would not shut down in the coming weeks, although no specific names seemed ready to issue.

Some believe there are still Latin American sovereign bonds in the pipeline, he said.

From the major markets, stocks thrashed through the session sending volatility higher by 0.60 to end at 25.61, according to the VIX index. The index is an often used gauge of market volatility.

Brazil brings retap

Brazil priced a $500 million reopening of its 7 1/8% bonds (Ba1/BBB-/BBB-) due 2037 at 108.63 to yield 6.45%.

Deutsche Bank and JPMorgan acted as bookrunners for the deal.

The retap will be added to the $2.5 billion already outstanding on the issue originally sold on Jan. 18, 2006.

Proceeds will be used for general budgetary purposes.

The bonds were later seen trading up at 109.7 mid.

"It came and went," a strategist said, "it was a very straightforward issue."

The quick gain came from follow-through buying, he said.

The 11% Brazilian sovereign bonds due 2040 were quoted at 130¾ bid, 131 offered.

LatAm up with Brazil

The Brazilian sale seemed to help "the whole market," he said, or was indicative of strong sentiment.

Venezuela was strong even as it turned heads by recalling its ambassador to Colombia and cancelled all trade deals with it neighbor.

Bogota charged on Monday that FARC rebels were caught with Swedish-built weapons allegedly supplied by the Venezuelan military, reports said.

President Hugo Chavez denied the charges, but still railed against the increased presence of the United States in Colombia.

Also in his speech, Chavez accused the United States of turning Colombia into the "Israel of Latin America."

"We haven't seen much of a fallout," the strategist said, "'Vene' is actually a little better."

The 9¼% Venezuelan government bonds due 2027 were quoted at 68½ bid, 68¾ offered, while the 7 3/8% Colombian bonds due 2019 were seen at 107½ bid, 108 offered.

In Argentina, "there was a little bit of selling," he said.

Most of the sellers were taking profits, the strategist guessed, rather than running from a situation that would require the provinces to issue on their own, without the federal government.

"Buenos Aires has been trying to issue for quite some time now," he said, but the borrowing cost would be too high.

If a province makes a serious attempt, "it will be interesting," he said.

The 8.28% Argentine discount bonds due 2033 was spotted at 57½ bid, 58 offered.

Asia reeled tighter

Asia was fertile ground on Wednesday, particularly for "these real money guys," a trader said.

Price levels were undercut by the poor Treasury auction in the United States which made for "better bids on the cash side," he said.

Few issues distinguished themselves from the pattern as CDS spreads were 2 bps to 5 bps wider, while cash was unchanged to 2 bps wider, he said.

Buyers were drawn to the big names in such stable markets as Hong Kong, South Korea and Indonesia, he said.

Woori Bank, which priced at Treasuries plus 450 bps on Monday and sharpened dramatically after that, "has stabilized quite a bit," he said.

The spread tightened to 386 bps at one point, he said, but on Wednesday it held at 400 bps bid, 395 bps offered.

"It's a relatively tight range, actually," he added.

The mostly Asian held Hong Kong Mortgage Corp., which priced at Treasuries plus 110 bps last Friday was seen tighter by another 2 bps to 93 bps bid, 83 bps offered.

Korea National Oil Corp. was seen at 278 bps bid, 272 bps offered.

Meanwhile, the Korean sovereign held in well.

The South Korean bonds due 2014 were quoted 3 bps tighter at 222 bps bid, 215 bps offered.

From here "bonds are going to trade by sentiment," he said after being range-bound earlier in the week.

"Obviously, U.S. GDP is going to be a big thing" when the number is released on Friday, he said.

Elsewhere, Indonesia's government bonds due 2019 added 1 point to 131 bid, 132 offered, while the Philippines' sovereigns due 2030 were unchanged at 123¾ bid, 124¾ offered.

PM pushes for peace

In South Asia, those concerned over the stability of the region waited to hear India prime minister Man Mohan Singh's assessment of peace talks with Pakistan.

Singh pressed parliament to support continued talks with Islamabad, arguing that is the best route for achieving peace.

"Dialog is the best way forward," Singh said.

Many in India have argued that Pakistan must do more to combat terrorism on its side of the border before returning to the table with India.

Emerging Europe hangs on

Emerging Europe traded well on overall strong market tone on Wednesday.

Turkey's recent retap of its 7½% notes due 2017, which priced last Friday at 105.18, was holding its value.

The Turkish government bonds due 2017 were quoted at 105¾ bid, 106 offered.

Also in emerging Europe, Ukraine recalled two of its diplomats from Russia prompting a similar reaction from Moscow, reports said.

The two sides accused each other of taking provocative actions.

The two former Soviet states engage in frequent spats over oil, trade and Ukraine's desire to join NATO.

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