Emerging markets end week steady; Gazprom sells $2.25 billion bonds; spreads in on Treasuries

By Aaron Hochman-Zimmerman

New York, April 17 - Emerging markets leveled off from their climb on Friday as the rally finished another week.

Russia's OAO Gazprom also finished an active week in the primary as it priced $2.25 billion of 10-year bonds during New York's morning at a yield of 9¼%.

The deal's size nearly eclipsed the $2.4 billion of bonds from other issuers that priced on Thursday over three deals.

On the trading side, cash prices were mixed even as spreads were drawn tighter by selling of U.S. Treasuries.

The market's recent success had bred a strong tone; however, some investors are beginning to feel as though levels are too high and things will be "more noisy on the contractions front," said Enrique Alvarez, a Latin America debt strategist at think tank IDEAglobal.

Meanwhile, from the major markets equities inched higher to close the week as volatility gave back 1.85 to close at 33.94, according to the VIX index. The index is an often used gauge of market volatility.

Treasuries slipped again as emerging markets tightened by 10 basis points to a spread of 543 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.

Emerging Europe holds

Emerging Europe ended the week with busy trading, but levels largely ended unchanged.

Meanwhile, on the primary side in Russia, the government's gas export monopoly, Gazprom, priced $2.25 billion 10-year bonds at par to yield 9¼% (Baa1/ BBB).

The bonds priced at the tight end of talk of 9¼% to 9½%.

The 10-year bonds also came with a spread of Treasuries plus 638 bps, while a three-year put available on April 23, 2012 priced at a spread of Treasuries plus 795 bps.

Credit Suisse acted as bookrunner for the deal.

Gazprom is a Moscow-based energy firm.

In Ukraine, the International Monetary Fund announced that it will extend $2.8 billion to Kiev rather than the $1.9 billion originally planned, said Ceyla Pazarbasioglu, head of the IMF mission to Ukraine, according to reports.

The new loan represents the second tranche of a $16.4 billion loan agreement with the volatile former Soviet republic.

LatAm coasts to close

Latin America was largely flat, but over the week investors may have overrun its supply lines as the market, particularly in Colombia and Mexico, has become "overextended in a sense," said IDEAglobal's Alvarez.

Colombia and Peru were recently able to come to market along with a strong telecom from Brazil, Telemar Norte Leste SA.

Telemar's deal was considered a success, and Colombia and Peru priced at a concession, but "slowly, that's sort of been made back," he said.

Meanwhile, other issuers remain jittery, he said, in what has become a "tepid" environment.

Issuers are able to price, but recently in the neighborhood of 30 bps concessions, Alvarez said.

"It's very much a buyers market," he said, which is really "giving some immediate upsides."

Colombia's retapped 7 3/8% bonds due 2019 traded well, but "I find this to be rich," he said.

The bonds, which priced at 99.99 on Tuesday, were seen at 103 bid, 103½ offered.

In Venezuela, "no one can put a finger on" why the bonds have done so well recently, Alvarez said.

It is plausible that "people are re-accumulating positions" or there could be "something generated domestically," such as a debt buyback, he said.

The 9¼% Venezuelan sovereigns due 2027 dropped 1 point to 63¼ bid.

Elsewhere in trading, Argentina's 8.28% discount bonds due 2033 dropped 0.5 point to 29¼ bid, 29 7/8 offered, while the 5 7/8% Brazilian bonds due 2040 were quoted at 97¾ bid, 98½ offered.

Bermuda pushes private placement

Also in the category, British territory Bermuda is marketing $200 million of notes as a private placement.

The deal is expected to be comprised of three tranches, with five-year, seven-year and 10-year maturities.

JPMorgan is the placement agent.

Bermuda is viewed as an NAIC-1 issuer by the National Association of Insurance Commissioners.

Asia spreads tighten

Spreads were tighter in Asia on Friday, but mostly due to Treasury action.

The week, which featured new deals from Indonesia and the Industrial Bank of Korea, ended quietly.

In the Philippines, Thursday's rate cut was followed by a cut of the inflation outlook to 3.4% from 3.9%, reports said.

The government also cut its GDP growth forecast to 3.1% to 4.1% from 4.3% to 5.3%.

The peso was seen trading at 47.865 to the dollar.

In Indonesia, waste from the production of palm oil and rice may have the ability to provide 0.8 megawatts of electricity.

In 2008, Indonesia produced 19 million tons of palm oil and 60 million tons of rice, which may be converted into energy, said World Bank efficiency expert Lars Moller, according to the Jakarta Post.

Moller's team has examined ways the country may save money through the use of environmentally friendly technologies and practices.

Also in Asia, Pakistan is in line to receive more than $5 billion in aid to help the government combat Islamic extremism, reports said.

The money will come from a consortium of 30 countries organized by Japan and the World Bank.

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