Emerging markets climbing higher; spreads tighten; tone sharply improved; Philippines, Indonesia up

By Aaron Hochman-Zimmerman

New York, Nov. 4 - Emerging markets investors were letting hope show through on election day in the United States.

"My guys in New York were late this morning," said a London-based trader about New York's sluggish start due to long waits at polling sites.

Still, the optimism was apparent.

"It just feels better," the trader said, adding that perhaps "the worst is behind us."

Plenty of aid has hit the markets in recent weeks, but the recent recovery cannot be credited to any one program or data point, he said.

"Like on the way down there's nothing special that made any day worse than the last," he said.

"We are and were overdue," he said, as "greed is coming back to the market."

The market saw "absolute low cash prices and wide spreads" and people thought "the downside is pretty limited," he said.

However, "it doesn't mean the economy will not be trash next year," he added.

In trading, the Philippines and Indonesia continued to wind tighter in spread terms, while both added 4 points to their bonds due 2030 and 2018, respectively.

From the major markets, volatility fell by 5.95 to 47.73, according to the VIX index. The index is a common measure of market volatility.

As a sector, emerging markets narrowed by 29 basis points to a spread of 582 bps, according to JPMorgan's EMBI+ index. The EMBI+ determines the amount of extra yield investors will demand to hold assets in emerging market debt.

LatAm recovery rolls on

Latin America has mounted a slow march higher in recent sessions thanks to a friendlier market environment.

"Globally it seems a little bit better," a syndicate desk official said.

Equities have been rallying around the world and "CDS has been dropping consistently," he said.

"You don't hear about issuers coming to the market," he said, but investment grade is beginning to get more active.

Many believe investment grade will be the first category to reopen primary markets.

In trading, Latin America's high-beta credits posted strong gains.

Argentina's 8.28% discount bonds due 2033 added 4 points to 29 bid, while Venezuela's 9¼% bonds due 2027 tacked on 3 points to 64 bid.

Meanwhile, Brazil's most liquid issue, the 11% bonds due 2040, has soared by 21% since Oct. 22, the official said. The bonds were quoted at 119.2 bid.

Also, the Brazilian 7 1/8% bonds due 2037 added 1.75 points to 94.5 bid.

'Much better' in emerging Europe

"The market is much better" in emerging Europe, a trader said, although "it's still as illiquid."

The first trade for Russia's benchmark bonds due 2030 came in the mid-afternoon, he said.

"There's still very little trading," with a bit more activity on the CDS side as issues tightened, he said.

The tone was also improved as "the bias is much tighter," he said, with "better spreads."

The Russian bonds due 2030 were quoted at 94 bid, 94.5 offered.

Meanwhile in Ukraine, after his visit to Russia, Libya president Muammar Qaddafi met with president Viktor Yushchenko on Tuesday.

The Ukrainian bonds due 2016 were seen at 49 bid, 51 offered, while the bonds due 2017 were seen at 48 bid, 50 offered.

Also in Turkey, the government made attempts to explain the high price of fuel to the opposition and the public as the weather begins to turn colder, the Hurriyet Daily News reported.

"No doubt, price hikes are never good. But these are made only because we have to," finance minister Kemal Unakitan said, adding that a price reduction may be feasible in early 2009.

Still, "the hikes in our country remain at a lower level compared to those in Europe," said Saltuk Duzyol, the chairman of the Petroleum Pipeline Corp.

Turkey imports most of its oil from Russia and Iran, the report said.

The Turkish sovereign bonds due 2030 were spotted at 132 bid, 135 offered.

Asia spreads tighter

In Asia, "the tone is better, the market is functioning better," a trader said.

There is "two-way flow and price discovery going on," he said.

There's been a big bounce in sovereign cash and CDS tightened all last week, he said.

Within one week the Philippines and Indonesia have narrowed nearly 500 bps to 700 bps, he said.

"There's been some pretty extreme short covering," he said.

In Indonesia, inflation figures dropped to 11.8% in October, compared to 12.1% in September, the Jakarta Post reported.

"September was the peak of inflation as psychologically and economically consumer prices rose in the fasting month," said central statistics agency chairman Rusman Heriawan in the report.

In accordance with historical trends, prices were up during the month of Ramadan leading to the Idul Fitri celebration.

"In October, everyone was cooling down. Consumption was back to normal and prices were held at normal values," Rusman said.

The Indonesian bonds due 2018 jumped 4 points to 80 bid, 84 offered.

Meanwhile, South Korea's five-year CDS tightened by 30 bps to 245 bps bid, 255 bps offered.

Also in Asia, China and Taiwan signed historic accords that will triple the amount of passenger flights between the island and the mainland.

The agreement also opens, free of taxes, certain ports.

The deal was signed by each side amid throngs of protesters and police in the streets of Taipei.

A Chinese official was accosted by protestors during preliminary negotiations in October.

Philippine fundamentals strong

In the Philippines, the central bank touted the strength of the economy in the first half of 2008 after the subprime crisis locked world credit and spiked commodity prices.

The country's banks are still able to boast "steady asset expansion, double-digit credit growth, growing deposit base, ample liquidity, continuing improvement in overall asset quality and solvency ratios well-above minimum norms," the central bank said in a statement.

During the first half of the year, banks remained liquid, solvent and registered a collective profit of PHP 25.1 billion, the statement said.

The Philippine government bonds due 2030 also added 4 points to 112 bid, 115 offered.

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