Emerging markets home for holidays; high-betas find gains; tone firmer with equities

By Aaron Hochman-Zimmerman

New York, Dec. 24 - Investors were apparently more interested in buying last-minute gifts than emerging market bonds on Christmas Eve.

"Honestly, it never opened," a trader said about the almost non-existent trading volumes.

"Everything feels firmer with equities ... Unchanged with a firmer tone," he added.

"It's dead ... it's a waste," an emerging markets analyst said.

Still, Argentina led the ghostly thin trading as it saw a 1.5 point gain on its 8.28% discount bonds due 2033.

Venezuela's sovereigns due 2027 were close behind with a 1.4 point gain.

The news of a $6.2 billion investment in Merrill Lynch by Singapore's Temasek helped improve the sentiment on the equity side.

Merrill Lynch was also able to raise cash with the sale of Merrill Lynch Capital to General Electric for an undisclosed amount.

Meanwhile in currencies, the British pound hit a new low against the euro on Monday.

The pound now buys approximately €1.37.

With equities up on a low-volume Christmas Eve, volatility was spotted up slightly by 0.22 at 18.69, according to the VIX index. The index is the commonly accepted yardstick of market volatility.

Emerging markets tightened with the better market tone. JP Morgan's EMBI+ index narrowed 7 basis points to a spread of 225 bps. The EMBI+ calculates the amount of extra yield investors will require in order to hold money in emerging markets debt.

Headlines around EM

Russia's Uralmash has agreed to a deal with Austria's Siemens Corp. to create a joint company which will engineer and build metallurgy and mining equipment, the Itar-Tass News Agency reported.

No details about the deal have been released.

Also in Russia, liquefied gas will be sold through the Sakhalin-2 project in the spring of 2009.

Previously, the gas exports were intended to leave the Sakhalin region in 2008.

In Venezuela, president Hugo Chavez announced that Central American and Caribbean countries may trade resources and agricultural products for Venezuelan oil.

The announcement was made to the Petrocaribe group on Saturday. Many of the members of the trade group are already heavy users of Venezuelan oil.

Venezuela's 9.25% sovereigns due 2027 were up 1.05 to trade at 100.4 bid, 101 offered.

Argentina's 8.28% discount bonds due 2033 tacked on 1.5 to trade at approximately 96.15 bid, 96.5 offered.

Brazil's highly traded 11% bonds due 2040 dipped 0.3 to trade around 133.4 bid, 134 offered.

Elsewhere, the Central Bank of the Philippines said it may cut its overnight borrowing rate to 5% and its overnight lending rate to 7% during its January meeting, reported the Manila Times.

The bank already reduced each interest rate by 25 bps on Dec. 20.

The Philippines' government bonds due 2030 were unchanged at 134.375 bid, 135 offered.

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