Trading light; little price move; primary makes noise as Mexico plans $1 billion, Hungary sets benchmark

By Aaron Hochman-Zimmerman

New York, Sept. 24 - Emerging markets was busier in the primary than the secondary for the first time since the credit crunch set in.

Trading was light, but four new deals were brought out onto the emerging market stage including sovereigns from Mexico and Hungary, the former for up to $1 billion, the latter to be a benchmark-sized deal.

Argentina and Venezuela named a price for their Bono del Sur while in the secondary their high-beta issues managed to stay flat or post small loses.

"We're in wait and see mode," a trader said.

There has been talk of further rate reductions from the Federal Reserve Bank, but the trader does not see that as a near-term likelihood.

"Not for a while," the trader said about the possibility of Fed action.

One syndicate desk official was only "seeing a little movement out there."

The VIX index which quantifies market volatility finished the day up 0.37 to end the session at 19.37.

The slowness in emerging markets trading was evident in JP Morgan's EMBI+ index which was seen with a spread of 195 basis points, nearly flat from Friday's close at 194 bps. The index gauges the amount of yield investors expect in order to invest in emerging markets.

Quiet Europe flat to lower

In emerging Europe market watchers can hear the faint footsteps of new issues, but trading was light on low volatility.

There is still hesitation on the part of investors.

"No one in EEMEA appears to want to take the lead," said an emerging markets syndicate desk official who specializes in emerging Europe.

Russia's government bonds were trading flat, even as acting deputy prime minister Alexander Zhukov announced 7.5% growth in Russian GDP.

Zhukov touted budget surpluses along side increased state expenditures. In the private sector investment in industry, construction, and high-tech fields have shown the most progress, he said.

Russia's sovereigns due 2030 closed at 111.983 up slightly from Friday's close at 111.75.

In Turkey the government is balancing electricity rates with inflation and a debate over whether or not to continue its energy imports from Iran.

A market source said Turkey still has approximately €3 billion to €3.5 billion to raise under its eurobond program.

"Turkey is also rumored to be considering coming to the market, although I have heard that for a while now," a syndicate official said.

The Turkish government bonds due 2030 dropped to 155.230 from 155.5 last Friday.

LatAm trading overshadowed by primary

Mexico announced an annual inflation rate of almost 4% which triggered talk of a rate hike. Investors are still counting on another cut from the Fed which is expected to make investments in the United States and Mexico look better.

Meanwhile, the Mexican government announced a proposed retap of its 5 5/8% notes due 2017 and its 6¾% notes due 2034 for up to $1 billion.

The benchmark Mexican 5 5/8% sovereigns due 2017 were seen trading up at 99.80.

The government's 63/4s were seen trading at 109.00.

Amidst inflation talk, the peso gained on the dollar to close at 10.952.

The speculation of further Fed rate reductions also sent the real and the market in Brazil climbing on Monday.

The highly watched 11% sovereign due 2040 traded flat and finished at 133.50.

The real ended the day higher at 2.632 to the dollar.

Argentina and Venezuela announced a price of 108 for their Bono del Sur as their benchmark sovereigns turned in mixed performances.

In trading, the high-beta 8.28% Argentine notes due in 2033 were seen up approximately 0.25 from Friday at 92.75 bid, 93.25 offered.

The Venezuelan 9.25% sovereigns were lower by 0.25 around 150.00 bid, 150.25 offered.

Overall, "it's been a pretty quiet day around here," said a trader who deals mostly with Latin America.

Asian bonds deal in politics

Parts of Asia have been through a patch of political turmoil which has caused some risk-aversion and profit taking on the part of investors, even after a boost from the Fed rate cut last week.

The government of the Philippines has battled to solidify its national pension fund, and has tried to prevent, with some success, any damage to its sovereign issues.

There was "a bit of a stretch of profit taking," a trader specializing in Asia said, but indicated that the worst may have passed.

The benchmark Philippine 7¾% bonds due 2031 traded flat to slightly higher at 122.50 bid, 122.375 offered.

"Pakistan has gotten a fair bit more defensive," the trader said as political opponents to president Pervez Musharraf were arrested.

Monday, the BBC reported that approximately two dozen protestors were detained by police outside the Pakistani supreme court.

The court is hearing challenges to the embattled president's ability to run for another term in office.

Primary goes from crawl to walk

The emerging market primary seemed to show its ability to get onto its feet and produce five items for the calendar on Monday.

The market allowed Mexico to announce the planned reopening of two of its sovereigns to the approximate tune of $1 billion, Hungary to unveil a proposed benchmark samurai, and a price was set for the joint venture Bono del Sur deal.

Elsewhere, Israeli companies were busy with two local deals of their own.

The reason for the rash of new deals is not perfectly clear, but overall the Fed cut was called "quite successful" a buyside source said.

Whether or not the success will continue is another matter.

"It's all in the data," the buysider said about recent and future data releases, adding: "it's going to take time to make a read on some of those numbers."

Even if the market is healthy "there's very little issuance left to do this year," the buysider added about sovereigns in the pipeline.

There are however, a number of corporate deals still backlogged in the pipeline.

Sovereigns on center stage

Mexico (Baa1/BBB/BBB+), which has, like many other Latin American countries, been the subject of talk about inflation worries, has decided to reopen its 5 5/8% notes due 2017 and its 6¾% notes due 2034 for up to $1 billion.

Price talk for the deal is rumored at a one point discount to the bid.

Merrill Lynch and UBS will have the books for the deal.

"It looks like it will be oversubscribed," said a syndicate desk official who specializes in Latin American issues.

Argentina and Venezuela announced the next stage along the path to pricing their third local bond.

The two announced a price of 108 for their joint Bono del Sur III which will consist of two tranches each worth $600 million.

The Venezuelan tranche will be 7.125% TICC notes and the Argentine tranche will be 7% Boden bonds. Both are denominated in dollars, but will only be offered to local investors. They will mature in 2015.

Orders will be accepted until Friday.

Proceeds from the sale will be used to pay down existing debt.

Elsewhere, the government of Hungary mandated Mizuho Securities and Nikko Citigroup to act as bookrunners for an upcoming benchmark-sized samurai bond (A2/BBB/BBB+).

Proceeds will be used for general financing.

Israel busy after holiday

Israel's Internet Gold announced plans to sell NIS 423 million in series B debentures to local Israeli investors.

Apex Underwriting and Issue Management will bring the deal.

Internet Gold received early commitment offers totaling NIS 485 million, but accepted NIS 352 million worth.

Internet Gold is a telephone and internet provider based in Petach Tikva, Israel.

Israel's Cellcom Israel Ltd. will offer NIS 850 million in series C and series D debentures.

Interest will be paid based on the Israeli consumer price index, but payment will not be larger than 4.7% for the series C notes and 5.7% for the series D notes.

The principal of the series C bonds is repayable beginning in March 2009 and the interest will be repayable in March 2008. The principal of the series D bonds is repayable in July 2013 and the interest will be repayable in July 2008.

Proceeds raised from the deal 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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