Sentiment recovers with equities; high betas drop; Grupo M continues high yield postponements

By Aaron Hochman-Zimmerman

New York, Nov. 13 - Emerging markets spent a calm day riding the recovery in equities after the thrashing they received to end last week.

The bond market reopened Tuesday after a long holiday weekend in the United States to much improved sentiment as negative banking headlines were absent, but equities were helped to their feet by Wal-Mart's 8% earnings increase in the third quarter.

"Clearly the equity bounce was a pretty positive thing for sentiment," a portfolio manager said.

Still, "no one's crystal ball has been very good lately," he said wondering how long the bounce may last.

In trading, Venezuela watched oil, its major export, drop to $91 per barrel, and its benchmark sovereign due 2027 drop 0.7. Argentina led the losers for the session as its discount bonds due 2033 gave up 0.75.

In the primary, the Dominican Republic's Grupo M Holding SA pulled a $150 million deal, but investment grade and local-currency issuers were still ready to find investors.

"Anything below investment grade is struggling," the portfolio manager said.

Liquidity will continue to wash away as the end of the year approaches, he said, and "no one wants to hold anything illiquid now.

"The corporates will do poorly versus the sovereigns in that kind of environment," he said because they are perceived to be less liquid.

Further, where U.S. equities are concerned, the U.S. economy will likely continue to weaken through the first half of next year, another market source said.

The market is still in the process of adapting to changes after the highly liquid years between 2003 and 2006, the source said.

However, a continued period of economic sluggishness in the United States is still more likely than a full recession, the source added.

The market saw a steep drop in volatility as the day opened with an immediate plunge in the VIX index which ended down 6.99 to close at 24.10. The index is the standard gauge of market volatility.

As a sector, emerging markets tightened 3 basis points for the day to a spread of 220 bps, according to JP Morgan's EMBI+ index. The index calculates the amount of extra yield investors require to keep money in emerging markets debt.

High yield deals fading from primary

The primary continued to hemorrhage as it lost two dollar-denominated high yield deals from the calendar, but was able to add investment grade and local currency deals.

The United Arab Emirates' Jebel Ali Free Zone FZE plans to offer a benchmark-sized conventional bond and sukuk (A1/A+).

The Dubai-based trade zone authority asked Barclays, Deutsche Bank, Dubai Islamic Bank and Lehman Brothers to act as bookrunners for its debut issuance.

A roadshow for the deal began on Sunday.

South Korea's Hyundai Capital Services announced it has postponed a dollar-denominated benchmark-sized five-year senior unsecured bond (Baa2/BBB).

The company cited unfavorable market conditions as the reason for the postponement.

Deutsche Bank, Citigroup, Goldman Sachs, JP Morgan and Merrill Lynch were bookrunners for the deal.

Hyundai Capital is a Seoul-based firm which manages financial services for Hyundai Kia Automotive Group.

The Dominican Republic's Grupo M pulled its $150 million 10-year senior unsecured notes (Ba3).

Merrill Lynch was the bookrunner for the deal.

Proceeds would have been used for capital expenditure and general corporate purposes.

Grupo M is a Santiago, Dominican Republic-based textile manufacturer.

Among announcements of local deals, the Philippines' Ayala Corp. has proposed a new issue worth PHP 5 billion, with an option to increase the amount to PHP 8 billion (Aaa, Philratings).

Ayala is a Manila-based property developer.

China's Tsingtao Brewery Co. Ltd. announced plans to offer six-year notes worth 1.5 billion yuan with warrants.

The warrants will have a term of 18-months and will be exchangeable at a 2:1 ratio for Tsingtao stock.

The Qingdao, China-based brewer will use the proceeds from the deal to finance the construction of more breweries.

Headline filled Asia hangs on

Political instability has been part of the Asian landscape in recent weeks, and was highlighted on Asia's Monday as a bomb exploded outside of Congress in Manila, Philippines, killing three and injuring others.

Filipino congressman Wahab Akbar was among the dead. Geary Barias, Manila's chief of police said the congressman was likely the target of the attack.

The Philippines sovereign due 2030 was barely affected and was quoted at 131.25 bid, 132 offered.

Indonesia's sovereign continued a slight decline as it was traded at 103.75 bid, 104.75 offered.

In Pakistan, former prime minister Benazir Bhutto called for the resignation of president Pervez Musharraf.

Bhutto has stated that even if elections are held before Feb. 15, the results would be meaningless if they were held during the current state of emergency. She remains under house arrest in Lahore, Pakistan.

The Pakistani government bonds due 2016 were difficult to pinpoint, but were seen at a wide 86 bid, 93 offered.

LatAm softer on recovery day

Latin American trading was weaker even though broader market sentiment was on the rise.

The region also lost another new issuer from the calendar as Grupo M Holdings pulled its deal.

In Argentina, protestors gathered on the Uruguayan border in order to voice objections to a paper mill which they say will pollute the air and water in the border region.

Relations between the countries continue to be strained.

Argentina's high-beta 8.28% discount bonds due 2033 were seen off 0.75 to trade at 95.75.

Venezuela's 9.25% bonds due 2027 also fell. The issue was quoted down 0.7 at 103.75.

Brazil's sovereigns due 2037, not considered one of the high-beta credits, saw its price unchanged by the end of the trading day. The issue was quoted at a bid of 113.

Some tightening in emerging Europe

Prices were mixed to unchanged after a quiet day in emerging Europe, but spreads saw some tightening as confidence began to filter into the atmosphere.

In Turkey, military helicopters conducted missions over Kurdish sections of Iraq.

Many reports considered the missions airstrikes, but other reports describe them as reconnaissance flights over land suspected to belong to the Kurdistan Workers Party (PKK).

No casualties came as a result of the flights over Iraq.

Turkey's sovereign bonds due 2030 were spotted up 0.25 to trade at a bid of 158.

Russia strengthened its ties with India during Indian prime minister Manmohan Singh's two-day visit to Moscow.

The countries agreed to greater military and scientific cooperation including a proposed joint mission to the moon.

Russia also intends to build four more nuclear reactors in India in addition to the civilian facility it is currently building, according to a BBC report.

Russia's government bond due 2030 fell 0.25 to trade with a bid of 112.875.

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