EM trades slightly stronger; primary shows life; ADB prices $1 billion

By Aaron Hochman-Zimmerman

New York, Sept. 11 - The emerging markets day showed a little improvement and a better sentiment, even as investors continue to cling to the idea of a potential Federal Reserve Bank rate cut.

Tuesday's volume was up slightly after Monday, which was described by one market source as an "apathetic" market.

Investors have been have been anxiously awaiting a Fed rate cut. Some have said that they would see a reduction in borrowing costs as bad news and as evidence of a larger problem, but most see an easing as a step in the right direction for liquidity.

A third and perhaps larger group of market players just hope that definitive moves by the Fed will give the market more clarity and direction.

"The higher the better," a syndicate desk official said about the size of a rate cut.

"It will have a good effect, even if it's only a quarter [of a percentage point]," the official added.

In general the official's outlook was balanced between doom and salvation.

"I don't think it will crash; the truth will be somewhere in the middle," the official said.

"There's so much money around," the official said, adding: "People are looking for quality within the emerging markets.

"If it goes that spreads get worse, people will buy Brazil, Russia, Mexico."

Fed cuts are often an indicator of long-term weakness, another market source said.

Equity prices will probably benefit from a cut, the source said, but added that a reduction may be a harbinger of a looming recession, the source said.

"Personally, I'm not that excited about any Fed action," a buysider said, unconvinced action by the central bank will have much effect.

"It's going to be a pop, then people will realize things haven't exactly changed," a buyside source said.

Regardless of lending rates, volatility is expected to remain high for the foreseeable future, according to the source.

However, Tuesday's trading did end with progress as the VIX index shed 2.11 to close at 25.27, down from 27.38 at the end of the day Monday.

Stocks were able to make a comeback as equity traders showed their confidence that a reduction in the Fed Funds rate is on its way.

The Dow Jones Industrial Average ended at 13,308.39, up 180.54, and the Nasdaq Composite Index closed at 2,597.47, up 38.36.

Meanwhile in emerging markets, JP Morgan's EMBI+ index dropped 3 basis points from the end of the day Monday to finish at 238 bps.

LatAm shows mild strength

Brazil's 11% notes due 2040 finished at 133.00 bid, 133.05 offered. The highly-watched notes were just slightly stronger than Monday's close.

In a move that reassured debt holders, Brazil's finance minister Guido Mantega pressed legislators to renew taxes to ensure the government can lower its budget deficit.

Many also believe the Brazilian Central Bank will cut its lending rates by 25 bps to 11% in October. The bank may cut rates further to 10% some time next year, according to a market source.

In Brazil, like many countries, commodity prices, particularly food, have recently exacerbated inflation concerns.

Still, the overall effect of inflation and the wider credit crunch should be relatively minimal, a market source said.

Next year's expected Brazilian GDP remains at 4.4%.

Venezuela gains

Elsewhere in the region, Venezuela's 7¼% bonds due 2017 closed at 98.75 bid, 99.25 offered.

The issues strengthened even as the country faces a lawsuit from ConocoPhillips and ExxonMobil, as well as investor fears about the possible financial collapse of the state-run oil firm PDVSA.

The American oil giants are insisting that PDVSA is not living up to production agreements and its poorly maintained facilities are not meeting production standards.

Due to unfulfilled promises to refurbish oil infrastructure from president Hugo Chavez, PDVSA also is in danger of losing deals with China and Brazil.

The saving grace for Chavez and PDVSA are high commodity prices which have kept Venezuelan GDP growth one of the best in Latin America.

Meanwhile, Argentina's 8.28% sovereigns due 2033 ended the day flat from Monday at 85.25 bid, 85.4 offered.

Bonds may have been flat, but commodity prices are rising, and unlike in Venezuela where commodity prices are a benefit, Argentine consumers are suffering.

However, presidential candidate and first lady Cristina Fernandez de Kirchner said she was confident that her husband's government will reach its economic goal of 3.15% growth in GDP.

Thai bonds wider

Thailand's 5% notes due 2017 gained, with the yield dropping about 3 bps to close around 4.5% as the Thai baht dropped 0.3% against the dollar to 32.28.

Primary fogs the mirror

The primary market showed more life than it has in recent weeks even as trading remained light and investors eagerly awaited news of a rate cut.

The Asian Development Bank priced $1 billion of global bonds while Hong Long set talk for its $100 million deal.

Despite the day's successes, a buyside source had little confidence in the short-term prospects for the primary market.

"No broker is trying to suggest investors to buy any new credit at this time," the buysider said.

ADB prices, Hong Long talks

Late Monday, ADB priced a $1 billion three-year global bond (Aaa/AAA/AAA) at 99.90 with a coupon of 4 3/8%, according to a market source.

The deal priced at three-year mid-swaps minus 22 basis points, just off its initial guidance in the three-year mid-swaps minus 21 bps area.

Citigroup, Nomura Bank and UBS acted as bookrunners.

ADB is a Manila, Philippines-based development financier.

Hong Long Holdings Ltd. announced plans to sell $100 million five-year notes with warrants.

Price talk has been set at 12½% for the bonds, which are expected to price this week.

The upcoming issue is a relaunch of an earlier $175 million to $200 million issue.

In late July, Hong Long was unable to price a $175 to $200 million five to seven-year offer through Citigroup, but it is not known if Citigroup will bring the amended paper.

Hong Long is a Shenzhen, China-based property developer.

"It's probably just to private banks," a buyside source said.

"Given the size, $100 million, most of the real money players won't like the low liquidity," the buysider said, adding: "I think it's too hard to price it."

Cellcom Israel Ltd. announced its local offer of debentures will total between NIS 500 million to NIS 1 billion, according to a press release.

Final decisions have not been made decisions concerning timing and other terms of the potential Regulation S deal.

Proceeds raised by the expected sale will be used for general corporate purposes to include the repayment of debt.

The Netanya-based telecom is the largest cellular provider in Israel.

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