Emerging markets closing down for holidays; trading mostly flat; trivial volumes

By Aaron Hochman-Zimmerman

New York, Dec. 20 - Even with two trading days before Christmas, emerging markets was all but closed for the holidays.

Thin trading volumes granted Venezuela the title of biggest winner with a 0.25 gain for its sovereigns due 2027.

The market is "dead, dead, dead," a portfolio manager said.

"Things felt a little better as stocks were going up," he said, but "there's not too much from here.

"I think we continue to slide into year's end," he added.

The Federal Reserve Bank made its latest effort to inject liquidity before the end of the year with a $20 billion auction.

Bids were placed by 93 banks for the 35-day loans.

The auction is evidence that "the doubts related to funding are still persistent," said Enrique Alvarez, a Latin America debt strategist at think tank IDEAglobal.

"The only central bank that was able to affect Libor was the [European Central Bank]," he said.

Yet "the two-week Libor is still ridiculously high" at 5%, he said.

Bear Stearns put one more drag on the market to end the year by announcing an $854 million loss in the fourth quarter, compared to a net income of $563 million for the same period in 2006.

"We are obviously upset with our 2007 results, particularly in light of the fact that weakness in fixed income more than offset strong and, in some areas, record-setting performance in other businesses," said Bear Stearns' chief executive officer James E. Cayne in a press release.

Not all of Thursday's headlines were negative.

The U.S. Department of Commerce reported final third quarter GDP growth of 4.9%.

With the slight lift in equities, volatility dropped 1.10 to 20.58, according to the VIX index. The index is the standard yardstick of market volatility.

Emerging markets was quiet enough for spreads to remain stagnant. JP Morgan's EMBI+ was unchanged at a spread of 243 basis points. The EMBI+ determines the amount of extra yield investors require to hold assets in emerging markets debt.

LatAm ready to call it a year

"LatAm is pretty wrapped up," Alvarez said.

"It's not a lack of leadership, people have pretty much packed it in," he said.

"The overall trading crews are small," he added.

Venezuela's government bonds due 2027 led trading with a gain of 0.25. The issue was quoted at 99.25 bid, 100.75 offered.

Argentina's 8.28% discount bonds due 2033 gained 0.1 to trade at 94.6 bid, 95.8 offered.

Brazil's 11% sovereigns due 2040 gained 0.05 to trade at approximately 133.25 bid, 133.35 offered. The issues due 2037 gained 0.1 and were quoted at 112.9 bid, 113.30 offered.

The low volumes are likely to continue into the early part of January, Alvarez said.

Desks empty in emerging Europe

Trading floors may have been silent, but headlines bubbled up from emerging Europe.

In Turkey, the corporate tax income through November increased by 24.5% or 13 billion lira, compared to the same period in 2006, the Turkish Daily News reported.

Tax revenue for the first 11 months was 114.5% above expectations.

The Finance Ministry speculated that the boon may have come from increased enforcement of tax laws and the use of automation.

Russia signed a deal to build an oil pipeline from Turkmenistan through Kazakhstan, ending in Russia.

The European Union had hoped to limit Russia's influence over European energy by encouraging a new pipeline that would avoid Russian territory.

Construction is expected to conclude in 2010.

South Africa's senior prosecutor is expected to make a decision whether or not to charge the new head of the African National Congress, Jacob Zuma with corruption.

The National Prosecuting Authority claims it has enough evidence to bring the case to trial.

Philippines cuts rates

In the Philippines, the monetary board of the central bank cut two key policy interest rates.

The overnight borrowing rate was reduced by 25 bps to 5.25% and the overnight lending rate was cut to 7.25%, according to a press release.

The decision was based on inflation rates which well below the 4% to 5% projection for 2007 and within 100 bps of the 4% projection for 2008.

Inflation has been affected by worldwide commodity prices, but the "risks remain manageable," the release said.

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