Emerging markets mellow out; trading mixed, mostly flat; CAF prices $250 million retap

By Aaron Hochman-Zimmerman

New York, Jan. 25 - Emerging markets yawned through an afternoon of light trading and flat prices after what a syndicate desk official called "the longest short week anybody's ever had."

Investors were ready to begin the weekend early, which worked to emerging markets' benefit as they sat back to watch U.S. equities throw back gains from earlier in the week.

In the primary, Venezuela's Corporacion Andina de Fomento reopened its 5¾% notes for $250 million at Treasuries plus 235 basis points.

Emerging markets trading was also becalmed by cautionary sentiment ahead of another big week in the market.

"You have the Fed and non-farm payrolls after that," said Enrique Alvarez, a Latin America debt strategist at think tank IDEAglobal, about the major events of Wednesday and Friday.

After a wild week, "opinions are becoming more divergent," the syndicate official said about the size of a possible rate cut from the Federal Open Market Committee.

Still, a 50 bps cut is the most common opinion, he said, but added that Friday's payroll numbers are likely more important.

Volatility made a steady climb into the afternoon to close up 1.30 at 29.08, as measured by the VIX index. The index is a widely accepted gauge of market volatility.

The equity retreat left room for Treasuries to move up, which pushed emerging markets wider by 5 bps to a spread of 276 bps, according to JP Morgan's EMBI+ index. The EMBI+ calculates the amount of extra yield investors are willing to accept in order to keep money in emerging markets debt.

LatAm turns down volume

After a wild week across all sectors, Latin American credits traded lightly as investors were ready to take a breather.

The big market movers were "surprisingly the Chile '13s," IDEAglobal's Alvarez said.

The investment-grade credit slightly "outpaced the rest of the market," he said.

The Chilean bonds due 2013 were quoted up 0.625 to trade at 105.75 bid.

Argentina is scheduled to open a natural gas pipeline connecting it to Bolivia in three years, the Buenos Aires Herald reported.

The pipeline is expected to pump in up to 27 million cubic feet of fuel per day compared to the current 7 million cubic feet imported from Bolivia.

The government has also recently taken other steps to deal with the power crisis it until recently claimed did not exist.

However, the measures have shown little success. Edenor employees with police escorts have been tasked to travel door-to-door to exchange older high-watt light bulbs for new high-efficiency ones.

Approximately 25 million bulbs are scheduled for replacement, but only about 6,000 have been collected so far, a market source said.

"That's our Argentina," a portfolio manager said.

The Argentine 8.28% discount bonds due 2033 were quoted flat at 93 bid, 93.4 offered.

The Edenor notes due 2017 were spotted unchanged at 96.75 bid.

Venezuela's 9.25% bonds due 2027 showed modest gains but still led the high betas. They were better by 0.35 to near 101 bid, 101.85 offered.

Brazil's sovereigns only flinched to close out the week.

The 11% bonds due 2040 dropped 0.2 to trade at 134.1 bid. The 7.125% bonds were unchanged at 109.55 bid, 109.8 offered.

In Ecuador, thousands marched against constitutional reforms proposed by president Rafael Correa.

Correa took away mining concessions for foreign firms, Alvarez said, but "we knew this was coming.

"He has the Chavez playbook," Alvarez added, and he will use it from time to time.

Ecuador's sovereign bonds due 2030 traded up 0.25 at approximately 97.25 bid, 98.1 offered.

Emerging Europe loses steam

Emerging Europe traded largely flat on light volumes Friday.

Typical Friday malaise was coupled with exhaustion from a week of severe highs and lows.

On the political front in Russia, government officials have signed a deal with the Serbian government which will allow OAO Gazprom to buy a 51% stake in Serbia's national oil company Naftna Industrija Srbija.

The deal is reportedly worth up to $2 billion.

As part of the arrangement, the new South Stream pipeline will use Serbia as a hub on its way from Russia to the European Union.

Russia's government bonds due 2030 were lower by 0.125 to trade at approximately 115 bid.

In the Ukraine, demonstrations were held in the streets of Kiev to protest the country's bid to join NATO.

Protestors expressed concerns that as a member the Ukraine would be forced into other nation's conflicts.

Opposition leader Viktor Yanukovich has asked for a letter from the government to NATO be published.

The letter ostensibly deals with the former Soviet state's potential membership in the alliance.

The Ukrainian government bonds due 2016 were quoted at 100.25 bid, 100.75 offered.

While at the World Economic Forum in Davos, Switzerland, Turkey's state minister Mehmet Simsek said the fluctuations in the global markets will be difficult, but manageable for the Turkish economy.

"Turkey is now standing on much healthier and stronger ground, compared to past. Therefore the effects of such shocks on Turkey would be limited and tolerable," he said, according to the Turkish Daily News.

The Turkish bonds due 2030 slipped 0.125 to trade at 156 bid.

Also, South Africa's major gold and platinum miners have ceased operations due to power outages.

Mining safety concerns arose when state-run power provider Eskom stated it could not guarantee a consistent supply of power.

CAF prices $250 million retap

Corporacion Andina de Fomento (A1/A+/A+) reopened its 5¾% notes due 2017 for $250 million at Treasuries plus 235 bps.

The deal came at a price of 98.007 to yield 6.041%.

The spread matched initial guidance at Treasuries plus 235 bps.

The original offer of the 5¾% notes came at $250 million on Sept. 7, 2006 and was later reopened for another $250 million on Jan. 23, 2007. The total principal amount of series is now $750 million.

Credit Suisse was the bookrunner for the registered deal.

Proceeds from the sale will be used for general corporate purposes.

CAF, which has headquarters in Caracas, Venezuela, is a multilateral regional bank for Andean development and integration.

Asia more sedate at week's end

After having seen the wides and tights of an elastic week, Asian trading was unmotivated on Friday.

Equities sank and investors began looking ahead to next week which will bring another meeting of the FOMC and the release of non-farm payroll figures.

Meanwhile, imports in the Philippines grew in November, making it the sixth month in a row to post increasing imports, the national statistics office said, according to the Manila Times.

Imports were up by 12.7% to $5 billion, compared to November of 2006.

During the first 11 months, imports totals were up by 5.7% to $50 billion, compared to the same period of 2006.

Oil products and electronic goods showed the greatest gains.

The Philippine bonds due 2030 were up just 0.125 to a level of 132.25 bid, 133.5 offered.

In Indonesia, PLN, the state-run energy firm, said it would have trouble financing a 10,000 megawatt coal plant now that Chinese investors have backed away from the deal, the Jakarta Post reported.

PLN reportedly has $2.7 billion of the $4.8 billion it needs to complete a project, which involves 25 power plants.

The Indonesian bonds due 2018 also gained 0.125 to trade at 102.625 bid, 103.5 offered.

Pakistan's military successfully tested a medium-range ballistic missile capable of carrying a nuclear warhead, according to the national press.

Army chief, general Ashfaq Parvez Kayani also reassured critics that the Pakistani nuclear arsenal is securely in the hands of the army.

The Pakistani bonds due 2016 were quoted at 83.5 bid, 85.5 offered.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.