Emerging markets rally; Petrotrin to roadshow benchmark; spreads wider, EMBI+ under 400 bps

By Aaron Hochman-Zimmerman

New York, July 31 - Emerging markets coasted into the finish line of a week-long rally, which seemed to have no end in sight.

The market's appetite was tested by six new issues, and each time the buyers arrived in force.

By Friday the primary market had spent its ammunition, but the pipeline added a 10-year benchmark offering from Petroleum Company of Trinidad and Tobago to the calendar.

In trading, the recent new issues were unencumbered by either supply or sentiment and continued to press higher.

The new euro-denominated bonds from Russia's OAO Gazprom were trading at 105.

During the week, JPMorgan's EMBI+ index hit a 10-month low at 381 bps, according to EPFR Global.

The new territory allowed for a 53-week high on inflows into emerging markets bond funds specializing in local currency debt at $309 million, EPFR said in a release.

As a sector, the jump in Treasuries helped pull emerging markets wider by 11 basis points to a spread of 397 bps on Friday, according to the EMBI+ index. The EMBI+ determines the amount of extra yield investors will demand to hold assets in emerging market debt.

Also, from the major markets, volatility dropped at the open but spiked into positive territory late in the day to finish higher by 0.52 at 25.92, according to the VIX index. The index is a frequently used yardstick of market volatility.

Oil firm in pipeline

Petroleum Company of Trinidad and Tobago will offer a dollar-denominated benchmark-sized issue of 10-year senior unsecured bullet notes (Baa3/BBB).

Credit Suisse and JPMorgan will act as bookrunners for the deal.

A roadshow will be held on Aug. 5 in London, on Aug. 6 in New York, on Aug. 7 in Boston and on Aug. 10 in Los Angeles.

Proceeds will be used to fund capital requirements.

Petrotrin is a Pointe-a-Pierre, Trinidad-based government-run oil firm.

Straight ahead for emerging Europe

Emerging Europe saw no significant changes on the day of the U.S. GDP release and month's end.

"No news," a trader said. "CDS is still tighter ... cash is still pushing much higher," he said.

"Everybody is happy," a strategist said. "The game is still going on."

Gazprom watched its new bonds jump higher as the week closed.

The 8 1/8% dollar-denominated bonds were quoted at 101¾ bid on Friday, prompting a strategist to say "this one has come back a little."

Meanwhile, the attractive euro-denominated bonds were seen at 105 bid.

The 5.888% bonds from Abu Dhabi's Dolphin Energy Ltd. were the only recent new paper to drop after pricing.

However, on Friday the bonds were inching back toward par at 99.8 bid, 100.2 offered.

Ukraine's outlook was upgraded to positive by Standard & Poor's, the trader said, but there was nearly no affect on prices.

"I don't care what they say," the strategist said, adding that his order of preference for buying in the former Soviet states is Russia, Kazakhstan and then Ukraine.

The Ukrainian bonds due 2016 were quoted at 70 bid, 72 offered.

The Russian bonds due 2030 were seen at 100¼ bid, 100½ offered.

Also in emerging Europe, Turkey's recent $1.25 billion reopening of its 7½% notes (Ba3/BB-/BB-) due 2017 was seen at 106.2 bid, 106.6 offered.

LatAm ends big month

In Latin America there was little news, including the release of the U.S. GDP figure, that could "rattle many cages" on Friday, said Enrique Alvarez, a Latin America debt strategist at think tank IDEAglobal.

"Overall it was a very positive month if you look back for LatAm," he said, although credit underperformed equity in many cases.

Still, emerging markets are inside 400 bps on the EMBI+, he said.

"You can't take anything away from it," he said about the broad success, although the United States is a major influence and is battling many unknowns.

Housing seems to be "stabilizing," he said, and "LatAm has run up a lot on [the idea] that China is going to lead the way back, but China runs through the U.S.; it always has."

A bubble in China could send a streak of volatility through commodity markets, he said.

Fundamentally, Treasuries have pressured the category but are now resting close to 3.5% for the 10 year.

Meanwhile in trading on Friday, levels were mildly better as desks were thin and trading was light.

Brazil's retaped 7 1/8% bonds due 2037, which were reopened on Wednesday and Thursday at 108.63, "was a success," Alvarez said.

The bonds were seen better at 110 1/8 bid, 111¼ offered.

The 7 1/8% Brazilian bonds due 2019 were improved by ¼ point to 102.3 bid, 103.8 offered.

Meanwhile in Argentina, reports indicated that the province of Cordoba would go ahead with its $150 million bond issue.

The 8.28% Argentine discount bonds due 2033 added 5/8 point to 58 1/8 bid, 59¼ offered.

In Venezuela, president Hugo Chavez asked the legislature to help the government censor the media with a new law that would "regulate the freedom of expression," in the words of public prosecutor Luisa Ortega Diaz.

The government insisted the bill would not infringe upon freedom but would punish irresponsible media outlets, which distort the truth.

The 9¼% Venezuelan sovereigns due 2027 fell 0.2 point to 70 bid, 71¼ offered.

Also in the sector, Ecuador's 9 3/8% bonds due 2015 were unchanged but managed to hold their value above Venezuela's benchmark at 78 bid, 79½ offered.

Asia finishes strong

Asia finished a strong week trading positively even as volumes trailed off into the weekend.

In the Philippines, the local alliance between SPC Power Corp. and South Korea's Korean Electric Co. upped its request for a loan from the Asian Development Bank to $120 million from $100 million, the Manila Times reported.

The loan is expected to be delivered in August and will be used to help fund the $520 million Naga power plant complex.

Also in Indonesia, consumer confidence grew by 8½% in the second quarter, compared to the first quarter, according to the Jakarta Post.

The rupiah was seen trading at 9955 to the dollar.

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