Emerging markets slide lower; JBS USA's bonds weaken in secondary trading; Venezuela sturdy

By Aaron Hochman-Zimmerman

New York, April 23 - Emerging markets followed equities lower during early trading in New York; however, even as the category staged a small comeback, many credits ended lower for the day.

Trading desks were quiet, but sentiment remained strong overall ahead of upcoming ratings announcements for the major financial institutions, a strategist said.

Many prices dropped, but Venezuela held on to its relative strength and ended higher.

Venezuela's benchmark bonds due 2027 added 0.2 point as president Hugo Chavez made what could be considered a positive gesture toward the United States.

Also, U.S. high-yield issuer JBS USA, LLC slipped as neither high-yield nor emerging market account groups were completely committed to the deal, a strategist said.

However, emerging market bond funds posted the second straight week of inflows, "the first time they have done so in over eight months," according to an EPFR Global press release.

"This week [ended Wednesday] solid inflows into funds geared to hard currency debt were nearly offset by redemptions from local currency funds," the release said.

From the major markets, equities were indecisive throughout most of the session but ended higher as volatility slipped by 0.95 to 37.15, according to the VIX index. The index is a common measure of market volatility.

As a sector, emerging markets widened by 2 basis points to a spread of 564 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.

LatAm strong, JBS down

Latin America traded quietly on Thursday, but "there is some strength in the underlying tone of the market," a strategist said.

Still, credit traded slightly lower at the close of the session as U.S. equities came off of the day's highs.

In Brazil, the $700 million in bonds priced Wednesday by JBS USA traded down by ¾ point to 95 bid, another strategist said.

"That's what I expected from a bond that doesn't have good support from both [high-yield and emerging market sectors]," the strategist said.

The bonds seemed like a "backdoor way to finance whatever they want," the strategist said. "Pricing was ridiculous."

With single-digit EBITDA numbers "I don't know why think they can afford this," the strategist said.

The deal served to reinforce the notion that "you don't come unless you really have to," the strategist added.

Meanwhile, the 11% Brazilian bonds due 2040 were seen at 127 bid, 127¼ offered.

Also, Venezuela donated back to the United States the tiny Petty Island, which sits in the Delaware River between Philadelphia and New Jersey.

The island, which was bought by Venezuela's national oil firm PDVSA in 1990, was returned on the heels of brief exchanges between presidents Barack Obama and Hugo Chavez at the Summit of the Americas in Trinidad and Tobago.

The island will reportedly be used as a nature preserve.

The 9¼% Venezuelan sovereigns due 2027 also added 0.2 point to 64 bid, 64¼ offered.

Elsewhere in Latin America, Argentina's 8.23% discount bonds due 2033 took on 0.2 point to 29 bid, 29¼ offered.

Emerging Europe steps lower

Emerging Europe adjusted lower slightly on Thursday as spreads moved a touch wider.

U.S. equities began initially weak, but firmed up into the close, which allowed many issues to finish off of their lows.

In Russia, the central bank cut its key interest rate by 50 bps to 12½%, while the government announced that GDP fell by 9½% in the first quarter compared to the first quarter of 2008.

The GDP rate for March similarly fell by 9½%, according to deputy economic development minister Andrei Klepach.

The government expects another decline of 8.7% to 10% in the second quarter, compared to the same period of the previous year.

The Russian budget currently accounts for a decline of 2.2%, but Klepach said the government will revise its figures based on the new data.

The ruble was seen trading at 33.574 to the dollar.

The Russian government bonds due 2030 slipped 1 point to 96 bid.

Also in emerging Europe, Turkey's economy will shrink by 5.1% in 2009, according to the International Monetary Fund.

However, growth is expected to begin again in 2010 at a rate of 1½%, the IMF said.

"Stabilizing the financial system remains a key priority and, although progress is being made, further policy efforts will be required," the IMF report said.

The Turkish sovereign bonds due 2030 gave up just ¼ point to 142 bid, 143 offered.

Asia corrects downward

Asia saw a day of slight profit taking although sentiment still remained strong in the category.

In the Philippines, central bank governor Amando Tetangco said he believes the country's economy will continue to grow.

Tetangco first pointed to "domestic demand," in his statement.

"Personal consumption, which accounts for more than two-thirds of the Philippine economy, has been historically firm with private spending resilient across business cycles," he said.

Tetangco also noted that despite the declining global economy, nearly 9 million Filipino workers are still employed overseas and are adding to remittance totals.

The Philippine government bonds due 2030 were quoted at 119 bid, 121 offered.

Also in Pakistan, the government sent paramilitary troops to defend the Buner district from Taliban advances out of the Swat Valley.

The government had made unsuccessful attempts to enforce secular law in the Swat region, but on Wednesday, finally ceded the area to the militants, who will enforce Islamic law.

Despite the political volatility, the Pakistani bonds due 2017 held on at 55 bid.

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