Emerging markets find rally pace; Abu Dhabi prices $3 billion bonds; primary draws more interest

By Aaron Hochman-Zimmerman

New York, April 1 - Emerging market credit and its equity cousins moved higher on optimistic interpretations of Wednesday's economic data.

A syndicate official noted that the U.S. home sales data was generally negative, but the market's reaction caused him to cautiously suggest that the market bottom is behind us.

In the case that the worst is still ahead, at least on Wednesday, the market was "very firm" with "a decent amount of buying to my surprise," a strategist said.

"Credits are performing pretty well," he said, but he cautioned that the day's healthy tone did not represent a "change in the market."

From the primary market, the Emirate of Abu Dhabi drew the most attention with its $3 billion bond offering, which priced in line with its narrowed talk.

Another benchmark from Qatar is expected to follow on Thursday.

In trading, levels were stronger across the board, but Venezuela managed to stand out by adding 1 point to its bonds due 2027.

Volatility made a steady decline to end lower by 1.86 at 42.28, according to the VIX index. The index is an often used gauge of market volatility.

As a sector emerging markets tightened by 2 basis points to a spread of 634 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.

Abu Dhabi prices $3 billion

The Emirate of Abu Dhabi in the United Arab Emirates kept the primary market open for business as it priced $3 billion in equal five- and 10-year tranches (Aa2/AA/AA).

The five-year bonds priced 99.346 with a coupon of 5½% and a spread of Treasuries plus 400 bps.

The 10-year bonds priced at 99.242 with a coupon of 6¾% and a spread of Treasuries plus 420 bps.

Each matched the talk, but talk for the five-year bonds was tightened from the Treasuries plus 425 bps area, while talk for the 10-year bonds was tightened from the Treasuries plus 437.5 bps area.

Citigroup, Deutsche Bank and JPMorgan acted as bookrunners for the deal.

Once the bonds hit the secondary market, the five-year issue traded a bit higher while the 10-year tranche was flat, a buysider said.

Also in the Middle East, Qatar issued talk for its five- and 10-year benchmark bonds scheduled to price Thursday.

The five-year bonds are expected at Treasuries plus 350 bps.

The 10-year bonds are expected at Treasuries plus 387.5 bps.

Barclays, BNP Paribas and Goldman Sachs will act as bookrunners for the offering.

Emerging Europe volumes up

Elsewhere, Emerging Europe picked up the rally pace again on Wednesday even as protestors swarmed the streets of London and struggled with police during the G-20 summit.

Western leaders made the case against protectionism, while Russia prime minister Vladimir Putin said he favors leaving the agriculture market open to imports, according to the Itar-Tass News Agency.

"We cannot simply close the domestic market," he said in the report.

The Russian government bonds due 2030 inched up just 0.125 point to 93.875 bid.

In Ukraine, the parliament voted to slate the next presidential election on Oct. 25, reports said.

President Viktor Yushchenko plans to run for a second five-year term.

Yushchenko will likely face challenges from his former Orange Revolution ally, prime minister Yulia Timoshenko, and pro-Russia politician Party of Regions leader Viktor Yanukovych.

Elsewhere in Turkey, even after crossing the hurdle of parliamentary elections, prime minister Recep Tayyip Erdogan refused to accept the conditions attached to a prospective deal from the International Monetary Fund.

Ankara prefers to spend what may be a $25 billion loan on economic stimulus, while the IMF would prefer the money be used to reconcile the country's debts, including $50 billion of foreign debt, according to the Hurriyet Daily News.

The Turkish sovereign bonds due 2030 were seen at 136.75 bid.

LatAm starts off strong

Latin America started the quarter on a strong footing "on the back of the U.S. equity market," a strategist said.

In Mexico, in what could be seen as a small victory for the peso, Petroleos Mexicanos SAB de CV priced 10 billion Mexican pesos over two tranches in the local market.

The 6 billion peso three-year floating-rate bonds priced at Tiie plus 100 bps, while the 4 billion peso seven-year fixed-rate bonds priced at 9.15%.

Petroleos Mexicanos is a Mexico City-based state energy firm.

"We saw demand for 24 billion [pesos]," a market source said, which came mostly from local pension funds.

The peso was seen trading at 13.9095 to the dollar.

The 5 5/8% Mexican bonds due 2014 took on 0.25 point to 103.5 bid, 104 offered.

Also in the primary, Brazil's Constructora Norberto Odebrecht SA planned to price $150 million five-year bonds on Thursday during New York's morning, according to a market source.

Banco Santander and Banco Itau will act as bookrunners for the deal.

Brazil's 11% government bonds due 2040 were quoted at 127.3 bid, 127.5 offered.

Also, Argentina's 8.28% Argentine discount bonds due 2033 added 0.25 point to 27.25 bid, 28.25 offered, while in Venezuela, the 9¼% sovereign bonds due 2027 were better by 1 point to 58.25 bid, 58.75 offered.

Asia higher with equities

Asia posted another positive day on Wednesday as equities paved the way for an encouraging tone to begin the quarter.

In the Philippines, an Asian Development Bank country report said that the economy would only grow by 2.5% in 2009, compared to 4.6% in 2008.

The Philippines has been somewhat protected, but not isolated from the global crisis, said Thomas Crouch, ADB director general for Southeast Asia.

The Philippine government bonds due 2030 were seen at 119 bid, 119.5 offered.

In Indonesia, the bonds due 2019 were quoted at 109 bid.

Also in Asia, China president Hu Jintao met with U.S. president Barack Obama at London's G-20 summit where the two agreed to stronger economic ties in order to combat the global crisis.

"To this end, the two sides will exchange views and intensify coordination and cooperation on global economic and financial issues, climate change and energy," a White House statement said.

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