Market flat on summer volumes; quasi-sovereigns to price Wednesday; spreads creep tighter

By Aaron Hochman-Zimmerman

New York, June 9 - Emerging markets were nearly unchanged on Tuesday as the credit world was left without leadership or impetus to move in either direction.

In the secondary, "it's a slow grind," a trader said.

It seemed that there was little in the immediate future which could strongly influence the market, but sentiment remains at a susceptible point. "Any event can cause an outsized market reaction," he said.

The primary was also quiet on Tuesday, but syndicate desks watched for two quasi-sovereign issuers which were expected to price their deals on Wednesday.

The Central Bank of Bahrain and Korea Hydro & Nuclear Power Co. Ltd. each talked their dollar-denominated benchmark-sized deals on Monday.

In the major markets, equities were choppy on Tuesday as banks were allowed to begin TARP repayments, but volatility steadily tapered off by 1.50 to close the day at 28.27, according to the VIX index. The index is a common measure of market volatility.

As a sector, emerging markets narrowed slightly by 4 basis points to a spread of 413 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.

Quasi-sovereigns expected

Investors expected the two major quasi-sovereigns to price Wednesday after Tuesday's quiet session.

The Central Bank of Bahrain has talked its dollar-denominated benchmark-sized sukuk at Treasuries plus 350 bps.

Calyon, Deutsche Bank and HSBC will act as bookrunners.

Also, Korea Hydro & Nuclear Power is scheduled to price a benchmark-sized five-year note via Barclays, Citigroup, Deutsche Bank and Goldman Sachs.

The deal has been talked in the Treasuries plus 400 bps area and "it should be a reasonably well received deal," a trader said.

Asia in summer slumber

Asian trading was "completely dead," a trader said, although the market wrapped "slightly tighter."

The static nature of the market makes it more susceptible to headlines, but the "technicals are strong," he said.

The sector kept its eyes on Korea Hydro, which is expected to see a positive reception Wednesday.

As new supply loomed, South Korea's bonds due 2014 were mostly unchanged at 235 bps bid, 220 bps offered.

Looking at other developments in the region, in Indonesia, 150 gigawatts of renewable energy may be available for development, said energy and mineral resources minister, Verina Wargadalam, according to the Jakarta Post.

Most of the country's renewable energy resources come in the form of hydroelectric and geothermal power, as well as from biomass.

In 2007, the country only managed to use 5.7 gigawatts of renewable power, Wargadalam said.

The Indonesian sovereigns due 2019 were quoted at 126 bid, 127½ offered.

Also in the Philippines, the government bonds due 2030 were spotted at 125¼ bid, 125¾ offered.

Emerging Europe quiet, flat

Emerging Europe continued Monday's pattern of light volumes and little movement.

In Russia, foreign investment fell 30% to $12 billion in the first quarter, compared to the first quarter of 2008, prime minister Vladimir Putin said, according to reports.

Putin acknowledged the drop, but tried to put the figure in terms of the global recession.

"Although foreign investment fell in the first quarter amid the economic crisis, there was $12 billion in foreign investment in the first quarter," he said.

In Turkey, after months of on again, off again negotiations with the International Monetary Fund, economy minister Ali Babacan said that the government is prepared to do without a standby loan.

Ankara is planning for the country's future "with or without lending," he said, according to the Hurriyet Daily News.

Talks began in January, but many objected to the requirements the IMF was looking to place on the loan.

In principle, Ankara hoped to use the money for stimulus spending while the IMF wanted the money used to shore up the country's balance sheet.

The lira was seen trading at 1.547 to the dollar.

LatAm holds steady

Latin America traded quietly on Tuesday as syndicate officials watched the region's pending issue from Banco Cruzeiro do Sul wait behind the deals from Bahrain and Korea.

Banco Cruzeiro has announced a two-year fixed-rate bond via BCP Securities from a $1 billion program.

Initial guidance was set at 9¾%.

Also in recently resilient Brazil, the economy showed deeper signs of fatigue brought on by the global recession as its own economy contracted by 0.8% and fell into recession during the first quarter.

The 0.8% decline beat expectations of a 3.8% shrinkage, prompting bonds and currencies to held in.

The real was seen trading at 1.943 to the dollar.

Meanwhile in Argentina, former president Nestor Kirchner put his support behind Venezuela, instead of Argentine firms which have been nationalized by president Hugo Chavez, the Buenos Aires Herald reported.

Kirchner's support was also seen as an endorsement for Venezuela to be included in the regional trade bloc, Mercosur.

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