Emerging markets continue upward; tone remains positive; primary rolls out local deals

By Aaron Hochman-Zimmerman

New York, Feb. 26 - Emerging markets were again lifted by the rising tides of the equity market.

A day which began positive after a good performance on Monday only paused for a moment on negative data before pressing upward. The market took the early headline scare in stride, as the U.S. producer price index increase of 1% in January was only a bump on equities' road to a gain of 114 points on the Dow Jones Industrial Average.

The increase came after a 0.3% decline in December, according to a Bureau of Labor Statistics press release.

IBM was the launching pad for trading in the afternoon as it announced a stock buyback plan worth $15 billion.

"Stocks did tend to turn around sparked by the IBM news," a trader said.

The testimony before Congress by Federal Reserve chairman Ben Bernanke is tomorrow, Enrique Alvarez, a Latin America debt strategist at think tank IDEAglobal, said, but "I don't think he'll say anything different than what [Fed vice chairman Donald] Kohn already stated."

"Either it's an opportunity to sell stuff or it's a sign that the market's recovering," another trader said.

"It just feels fragile, doesn't it?" he asked.

When asked if the rally had any staying power, Alvarez said: "I'm not buying into it."

Although, "I'm sure that plenty are going to say 'yes,'" he said.

Some problems have been smoothed over in the United States, he said, but "underlying that, I see much more blood."

In the meantime, Argentina led the winners by posting a gain of 1.25 to its discount bonds due 2033.

The primary was able to offer two local-currency deals from the Asian sector.

Volatility was pushed down by rallying stocks as the VIX index ended lower by 1.13 at 21.90. The index is a frequently used gauge of market volatility.

Unlike Monday, Treasuries held in on Tuesday as emerging markets only tightened by 1 basis point to a spread of 260 bps, according to JPMorgan's EMBI+ index. The EMBI+ estimates the amount of extra yield investors will demand to keep assets in emerging markets debt.

Spreads, tone better in LatAm

LatAm overall has done well during the mini-rally of Monday and Tuesday, IDEAglobal's Alvarez said.

"The high beta have inched higher," he said, "That's where the core action has been."

In Brazil, the government announced it will begin a new multi-billion dollar anti-poverty initiative.

The program will focus on job creation and infrastructure in the poorest areas of the country, according to a BBC report.

The 2008 budget has already accounted for $6 billion for the project.

Similar programs have been criticized as attempts to buy votes, the report noted.

The 11% Brazilian government bonds due 2040 added 0.1 to trade at 133.25 bid, 133.35 offered.

Also, Brazil president Luis Inacio Lula da Silva announced that his country would provide electricity to Argentina during the winter if it becomes necessary.

The 8.28% Argentine discount bonds due 2033 gained 1.25 to 89.25 bid, 90.7 offered.

Panama jumped as its rating was upgraded to BB+ from BB by Standard & Poor's.

The bonds due 2027 were better by 1 point to trade at 125.5.

Colombia's bonds slipped on inflation concerns after Friday's rate hike, but the sovereigns due 2024 added 0.75 to 115.25 bid, 116 offered as S&P affirmed its BB+ rating.

Venezuela's 9¼% sovereigns due 2027 added just 0.15 to trade at 99.75 bid, 100.75 offered.

Asia strong with equity gains

"It's all very strong," a trader said about the broader markets.

However, some of the benchmark issues lagged the rest of the sector, which was already doing well at the open and only paused with the release of the producer price index figures.

Meanwhile, IBM's buyback announcement just bolstered an already positive market, he said.

"Spreads have moved in a lot," he said, adding: "The high-yield index is now a good 20 bps tighter in the last two days ... more than 40 bps tighter from Thursday last week."

"Investment grade is almost 20 [bps] tighter since Monday morning," he added.

In the Philippines, total imports grew to 19.7% from 12.7% during December, according to figures released by the national statistics office.

Total external trade for 2007 reached $105 billion, or 6.5% growth from the $99 billion during 2006.

The Philippine bonds due 2030 fell 0.75 to 129 bid, 129.5 offered.

To comply with regulations of Indonesia's central bank that were introduced last year, Singapore's Temasek Holdings will divest itself from the Bank International of Indonesia (BII), according to the Jakarta Post.

The Indonesian sovereigns due 2018 slipped 0.25 to 103.875 bid, 104.375 offered.

In a step toward increased democracy and freedom of speech, Pakistan's censors repealed the ban on the web site YouTube, according to the BBC.

The Pakistani government bonds due 2017 were quoted at 85 bid, 87 offered.

Also, in India inflation hit a six-month high as food prices continued to rise.

Many expect the price of commodities, including oil, to keep inflation pressures high.

The rupee was seen trading at 39.89 to the dollar.

Emerging Europe climbs despite data

"It's been creeping tighter" in emerging Europe, a trader said.

"Friday, yesterday and today were quiet, but constructive," he said on Tuesday.

"There's a few accounts putting money to work," he said, although there are more that are still sitting out.

Turkey's defense industry has devoted effort into expanding its international markets and may reach annual export totals of $1.5 billion in three years, the Turkish Daily News reported.

Elsewhere, the Iraqi government issued an official criticism of the Turkish incursion into northern Iraq.

The Baghdad government asked Turkey to end its military action, which began last Friday.

The Turkish sovereign bonds due 2030 added 0.625 to 153.25 bid, 153.5 offered.

Russia's state oil firm OAO Gazprom agreed to consolidate energy assets with the Siberian Coal Energy Co. (SUEK), according to a Gazprom press release.

Gazprom will hold a controlling interest in SUEK, the release said.

Also, ahead of the March 2 presidential elections the Kremlin has taken measures to squash the opposition, according to Amnesty International.

"There has been a clampdown on the freedoms of assembly and expression in the run-up to parliamentary and presidential elections in the Russian Federation," the watchdog group said in a press release.

"The authorities have violently dispersed some opposition demonstrations, while pro-government events have gone ahead without interference," the release continued.

The Russian sovereigns due 2030 were better by 0.1 to 113.45 bid, 113.5 offered.

In South Africa, due to an expected power reduction of 10%, the mining company Gold Fields announced it will likely see 20% to 25% less output this quarter and 10% to 15% lower output during subsequent quarters, according to a company press release.

The company has also considered cutting 6,900 jobs from its payroll of 53,000.

The National Union of Mineworkers has threatened a strike in the case of layoffs.

Local deals offered in primary

The market's early week success strengthened confidence, but only by enough for local issues to peer out of hiding.

Singapore's Oversea-Chinese Banking Corp. Ltd. announced plans to issue a 1.5 billion ringgit 10-year lower tier II bond.

The 1.5 billion ringgit issue may be increased to 2.5 billion ringgit.

OCBC Malaysia and RHB Investment Bank will act as bookrunners.

The bonds will be callable in five years and will step up, if not called, to the rate of the equivalent Malaysian government security plus 1%.

OCBC is a Singapore-based retail and commercial bank.

Five- and seven-year conventional tranches will be worth 500 billion rupiah each.

The five-year bond is expected to carry a fixed-rate coupon equivalent to FR 0033 plus 75 bps to 100 bps.

The seven-year bond is expected to carry a fixed-rate coupon equivalent to FR 0027 plus 80 bps to 105 bps.

The remaining 500 billion rupiah will be raised with a five-year sukuk.

The sukuk is expected to carry a fixed-rate coupon equivalent to FR 0033 plus 75 bps to 100 bps.

The books will be open between Feb. 25 and March 6. The issue is expected on April 9.

Danareksa Sekuritas and Mandiri Sekuritas will act as bookrunners for the deal.

Proceeds will be used to fund the company's expansion.

Indostat is a Jakarta-based telecommunications provider.

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