Emerging markets stronger; Qatar Telecom talks $1.5 billion; Treasuries wrap spreads tighter

By Aaron Hochman-Zimmerman

New York, June 1 - Emerging markets began the week at a gallop in terms of tightening, but at a walk in terms of flows.

Treasury yields were up to old tricks as the 10-year U.S. Treasury added 25 basis points, but emerging markets added to the narrowing as well, a buyside source said.

"There was some marginal tightening not related to Treasuries," the buysider said.

Qatar Telecom began the week by announcing talk in the area of Treasuries plus 425 bps and 445 bps for its $1.5 billion offering.

Meanwhile in trading, Venezuela rode the rising tides of equities and oil prices to add 3½ points to its benchmark bonds due 2027.

In the major markets, volatility crept back over 30.00 as it added 1.12 to end the day at 30.04, according to the VIX index. The index is a frequently used gauge of market volatility.

Treasuries as well as sector strength sent emerging markets tighter by 35 bps to 425 bps, according to JPMorgan's EMBI+ index. The EMBI+ estimates the amount of extra yield investors will demand to hold assets in emerging market debt.

Qatar Telecom talks

In the primary market, Qatar Telecom announced talk for its $1.5 billion five- and 10-year bonds (A1/A-/A+).

The five year bonds were talked in the area of Treasuries plus 425 bps, while the 10-year bonds were talked in the Treasuries plus 445 bps area.

Barclays, BNP Paribas, Development Bank of Singapore, JPMorgan and RBS Securities Inc. will act as bookrunners for the offering.

Qatar Telecom is a Doha, Qatar-based telecommunications firm.

Emerging Europe tighter

Also in emerging Europe, a strong day for equities and ever-sinking U.S. Treasuries helped emerging European credit wrap tighter on slow Monday volumes.

Meanwhile in Ukraine, the bloc of prime minister Yulia Timoshenko was rumored to be on the verge of an alliance with Viktor Yanukovich's pro-Russia Party of Regions, reports said.

However, reports conflicted over how close the two sides were or even that they were in talks at all.

The two sides have been rivals in the past representing interests in the European leaning West and Russian industrial East.

President Viktor Yushchenko sharply criticized the possible alliance while visiting the Vatican, according to his official web site.

Yushchenko said he would support a constitutional coalition but doubted whether the two sides would be able to form their alliance under the current law.

"In my opinion, this is difficult, I would say a utopian task for these people," he said.

Rather than moving the country in a European and democratic direction, this coalition may take the shape of two-person [Timoshenko, Yanukovich] government, which sets the "mission and status for the next 15 years," he said.

The Ukrainian bonds due 2016 were spotted at 68 bid.

Elsewhere in the Middle East, the northern Kurdish region of Iraq began shipments of nearly 100,000 barrels of crude oil to Turkey per day, reports said.

By 2010, the Iraqi fields are expected to produce twice the current amount of oil.

Asia better on low flow

Asia felt "pretty strong" as Treasuries were selling off on Monday, a trader said, but volumes were light.

"It felt like summer trading," he said, and the market will likely remain that way in the near term.

In South Korea, there was no progress seen from Korea Gas Corp., the trader said.

Still, even as North Korea threatened more missile tests, "in terms of credit spreads things are a lot tighter," he said about South Korea.

"I'm hearing different things" about Korea Gas, he said, but he was still confident that the market would support an issue.

"They could do one if they needed," he said.

The South Korean bonds due 2014 were seen tighter at 250 bps bid, 240 bps offered.

Meanwhile in China, U.S. treasury secretary Tim Geithner reassured the government that its vast investment in U.S. Treasury bonds remains "very safe," he said.

Beijing holds about $770 billion in U.S. debt.

In his speech, Geithner made only a fleeting note of what the United States sees as China's undervalued yuan.

The yuan was seen trading at 6.831 to the dollar.

In Indonesia, business leaders claim that restrictive taxes and regulations are harming the economy on the islands of Batam, Karimun and Bintan, the Jakarta Post reported.

The creation of a special economic zone would alleviate restrictions and encourage foreign investment, said Jamin Hidayat of the Bintan chapter of Indonesian Employers Association.

On the three industrial islands taxes, labor costs and rapidly changing government policies are prohibitive to further investments, he said.

The Indonesian bonds due 2019 were quoted at 126 bid, 128 offered.

In the Philippines, the sovereign bonds due 2031 were spotted at 110 bid, 110½ offered.

In Pakistan, terrorist attacks continued with a bus bombing in the northwest town of Kohat, which was believed to have killed two people.

The bombing was seen as an assault on the government, which continues its campaign against the Taliban in the Swat Valley.

LatAm hold high-beta strength

Latin America wound tighter with sinking Treasuries and spiking local stock markets.

Argentina held its rally pace of the previous week by adding 1¾ points to its 8.28% Argentine discount bonds due 2033.

The bonds closed at 43 bid.

Meanwhile in Venezuela, without any explanation president Hugo Chavez cancelled last Saturday's television appearance to celebrate the 10-year anniversary of his regular television addresses.

Oil also traded well above $68 per barrel on Monday, which helped the 9¼% Venezuelan sovereign bonds due 2027 jump 3½ points to 67 bid.

Also Brazil's 11% Brazilian government bonds due 2040 were seen at 130.85 bid.

Meanwhile on the corporate side, Mexico's Cemex SA de CV sent a memo to hybrid note holders informing them that the cement producer will skip for one day a June 30 payment on its yen-denominated swaps.

Skipping the payment forces the company to unravel some of its outstanding yen swaps.

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