Emerging markets inch tighter; High betas up; Russian Agricultural prices $1.75 billion

By Aaron Hochman-Zimmerman

New York, May 21 - Emerging markets firmed up with modest volumes as equities took a beating.

The primary market supported a $1.75 billion two-tranche issue from OJSC Russian Agricultural Bank, which was well-received by investors.

Meanwhile in trading, the high-beta benchmark credits of both Argentina and Venezuela were up 1 point.

Similar sentiments will probably carry through until "it will just tail away" as markets ease the workload ahead of Monday's bank holiday, a trader said.

"What is taking the grip and what is the correct judgment is that the financial crisis may not be over by any stretch, but it has entered a certain phase where people feel comfortable with how it's being dealt with," he said.

Equities suffered as volatility spiked midday to end higher by 1.01 at 18.59, according to the VIX index. The index is a yardstick of market volatility.

Treasuries took a step back as emerging markets tightened by 3 basis points to 258 bps, according to JPMorgan's EMBI+ index. The EMBI+ estimates the amount of extra yield investors will demand to hold assets in emerging markets debt.

Emerging Europe picks up in late trading

Before the U.S. equity dive, "it seemed to open up a bit suspect," a trader said about a jittery credit market during London's morning trading, but through the afternoon "prices were better," he said.

"It just seemed to pick up pace; its not doing anything crazy."

In Russia, following the May 19 presidential decree signed by Dmitry Medvedev to combat corruption, the Duma formed a similar commission on Wednesday.

The 12-member panel will offer new proposals to the president and monitor the implementation of existing measures, the Itar-Tass News Agency reported.

The Russian government bonds due 2030 slipped 0.15 point to 115.55 bid, 115.6 offered.

Also, polls were open on Wednesday in Georgia where voters were expected to re-elect president Mikhail Saakashvili's party, the United National Movement.

Still, opposition parties threatened action, including a rebellion, if they feel the results are dishonest.

There is also an ongoing investigation into the death of Geront Katsiya, an activist in the breakaway Abkhazia region.

Many believe his shooting was politically driven.

In Turkey, Istanbul ranked first in foreign trade with 56% or $46.25 billion of the country's imports and exports traveling through the city, according to the Turkish Daily News.

Bursa and Kocaeli ranked a distant second and third with $3.1 billion and $2.1 billion, respectively.

The Turkish sovereign bonds due 2030 were unchanged at 153 bid, 153.5 offered.

While Turkey hosted peace negotiators from Syria and Israel, the Bank of Israel was preparing for its meeting next Monday.

A market source expects a 50 bps hike to 3.75% from the bank in order to correct premature easing during the first quarter.

CIS battles inflation

In Ukraine, the central bank adjusted the value of the hrynia to 4.85 from 5.05 to the dollar, a buysider said.

The 0.3 revaluation was greater than the 0.2 move a market source expected as the central bank had to temper inflation fighting with the threat of speculation and volatility.

The hrynia was seen trading down at 4.563.

The Ukrainian bonds due 2016 were quoted at 98 bid, 98.5 offered.

Meanwhile, in Kazakhstan the government announced a ban on oil exports in order to keep prices from rising, a market source said.

The ban comes on the heels of similar stoppages of wheat and rice exports.

After exporting $430 million in oil during the first quarter, the source believes the moratorium will cost $337 million in revenue.

The move against the export of oil is evidence of a reluctance to combat inflation with monetary policy, the source said, adding that the mounting pressure on the tenge will begin to put pressure on what is a currently respectable cash reserve of $21 billion.

The tenge was seen trading at 120.04 to the dollar.

LatAm tightens, equities tumble

"Spreads closed tighter; everybody was up today," a buyside source said, despite a difficult day in the equity market.

In Venezuela, the government announced a target surplus of 4.5% of the GDP, up from 2.2%, although a market source said that goal would require major cuts in spending.

The government may be planning to use the excess to create a sovereign wealth fund and shorten the monetary tightening cycle, the source said.

Also, "there was some indication that there will not be debt issue and perhaps buybacks" of credit in 2008 from Caracas, the buysider said.

The oil producer improved on the session, but "it's not really oil prices," a buysider said.

The 9¼% Venezuelan government bonds due 2027 added 1 point to close at 92 bid.

Also in Brazil, the highly traded 11% sovereigns due 2040 were quoted at 136.85 bid, 136.95 offered.

Strikers, government at the table

In Argentina, talks will resume on Thursday at the latest, reported the state news agency, a market source said.

Cabinet chief Alberto Fernandez and economy minister Carlos Fernandez are expected to represent the government in talks with farm leaders.

With calmer headlines, "It looks like they might move toward an agreement," a buyside source said.

Also, the central bank was trying to intervene in the markets," the buysider said, "They were buying the bonds or just trying to buy the currency to support it."

The 8.28% Argentine discount bonds due 2033 improved by 1 point to 84 bid, 85 offered.

RusAg prices $1.75 billion

Russian Agricultural Bank (A3//BBB+) priced a five-year and a 10-year tranche of bonds at par for a total of $1.75 billion.

The $1 billion 10-year 7¾% bonds priced with a spread of Treasuries plus 391 bps. The tranche was talked at 7¾% to 8%.

The $750 million five-year 7 1/8% bonds priced with a spread of Treasuries plus 403 bps. The tranche was talked at 7 1/8 to 7¼%.

ABN Amro, Citigroup and Goldman Sachs acted as bookrunners for the deal.

The Russian Agricultural Bank is a government-owned Moscow-based lender focused on the agriculture sector.

"It's a big book; [it's] trading in the gray well," a trader said.

The book came in between $4 billion and $5 billion, a buyside source said.

The 10-year issue was slightly more oversubscribed than the five year, which helped the 10 year's early trading, the source said.

Still both finished 1 point higher near 101 bid.

Other deals, including the dollar offer from China's Noble Group, which is expected to spur the Asian primary, are waiting to price.

"[Thursday] may be the last window" for the week, a buysider said for issuers trying to price deals ahead of Monday's bank holiday.

Asia slips

Asian trading was "definitely weaker," a trader said as the indices stretched out 7 bps to 10 bps.

"It's still quite light," he said, similarly "There hasn't really been a lot going through in the cash markets."

"We're basically just tracking equities," and "we'll wait and see what happens with Noble," he said.

In Indonesia, the government plans to add to its assets in support of upcoming Islamic bonds, the Jakarta Post reported.

More than $2 billion has already been set aside for a sukuk program intended to attract investors from the Middle East who have seen record oil profits.

The Indonesian bonds due 2017 were flat at 101.75 bid, 102.25 offered.

In the Philippines, the state's National Food Authority has already used PHP 6.9 billion of PHP 7.5 billion 2008 budget for food subsidies, the Manila Times reported.

Finance secretary Margarito Teves said the agency will likely operate at a deficit of PHP 43.1 billion, compared to PHP 17 billion in 2007.

The Philippine sovereigns due 2030 added 0.25 point to 130.5 bid, 131 offered.

Meanwhile, Pakistan has issued warnings to its citizens that anyone caught hoarding wheat will face legal action, according to the BBC.

The government has also promised rewards to informants who uncover illegal wheat stocks or wheat being illegally sold abroad.

Local production is expected to miss its target by 1 million tons, but the government has approved a plan to import 1.5 million tons.

The Pakistani bonds due 2017 were quoted at 81 bid, 84 offered.

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