Emerging markets slide; LatAm high-betas slashed; Turkey hurting, 2030 bonds lose 3.5 points

By Aaron Hochman-Zimmerman

New York, Feb. 20 - Emerging markets limped to the finish line of a short week for traders in the United States but which felt like one of the longest weeks in recent memory.

Investors, under the specter of long-term pain, could only afford to think about the closest near-term threat, "how do we get out of the next few minutes?" a syndicate official asked.

Despite the new bear market lows for equities, "the fixed-income markets are still very active," he said.

Especially in U.S. corporates, a BBB-rated credit can still fetch 12%.

"They're weathering a pretty bad storm," he said.

"People are chasing yield" because there is nothing else which can be done, he said.

Meanwhile, traders in emerging markets were busy on Friday running from credits such as Argentina, Turkey and Venezuela.

Turkey's bonds due 2030 lost another 3.5 points on Friday during what has been a dismal two weeks.

Over the course of the week's action, cash continued to hemorrhage from emerging market bond funds across the board.

Funds saw outflows "for the 27th time in 28 weeks, although funds geared to both local and hard currency emerging markets debt did eke out inflows totaling $9 million" for the week ending Wednesday, according to EPFR Global.

As equities weighed on the market, volatility spiked but came off of its highs to end up by 2.22 at 49.30, according to the VIX index. The index is an often used gauge of market volatility.

Turkey leads Emerging Europe lower

Turkey's pain continued on Friday as the long-suffering credit gave up another 3.5 points to 125.25 bid, 127 offered.

Meanwhile, the government has its sights on pushing its economic reform package with or without the IMF, said economy minister Mehmet Simsek, according to the Hurriyet Daily News.

Simsek said he would like to reach an agreement with the IMF but not at the expense of the government's economic principals.

Negotiations between the sides ended in January when prime minister Recep Tayyip Erdogan said simply that the conditions attached to the IMF loan were too great.

It is generally believed that Turkey prefers stimulus spending to the IMF's requirement that loan money be used to shore up balance sheets.

"Turkey will be much more prepared for what is to come," Simsek said in the report.

In Latvia, prime minister Ivars Godmanis tendered his resignation to president Valdis Zatlers amid a deepening economic crisis in the Baltic country, reports said.

Opposition sides the People's Party and the Union of Greens and Farmers demanded the prime minister step down. Zatlers told reporters "the government of Latvia is incapable of working without the support of coalition partners, that is why I accepted the prime minister's resignation."

Latvia has already taken a $10 billion loan from the IMF.

Also in emerging Europe, Russia's bonds due 2030 slipped 0.375 point to 89.25 bid, 89.75 offered.

LatAm sinks, high-betas hurt

"Everything's lower" in Latin America, a syndicate official said.

The high-betas led the retreat in the category, but Mexico sank after a 25 bps rate cut to 7½% did not measure up to the 50 bps expectation.

The peso has sunk 27% against Latin American currencies in the last 12 months, the official said, although "there are others that have done worse."

The peso was seen trading at 14.7895 to the dollar.

The 8 1/8% Mexican bonds due 2019 were seen lower by 0.5 point at 95.75 bid, while the 5 7/8% bonds due 2014 were slightly better by 0.2 point at 100.65 bid, 100.85 offered.

In Argentina, farmers began a new four-day work stoppage on Friday in protest of export tariffs favored by the government, reports said.

"We have the best will to talk but we believe that we have been bamboozled and even attacked...We want the dialogue to be encompassing and open ... with real solutions within a framework of dignity," said farm leader Mario Llambias.

Throughout the summer of 2008, farmers blockaded roads and marched in protest over new export taxes proposed by the government.

The 8.28% Argentine discount bonds due 2033 were pushed lower by 2.25 to 26.5 bid, 28.75 offered.

High-beta Venezuela, which had rallied earlier in the week, sank on Friday's poor sentiment.

The 9¼% Venezuelan sovereign bonds due 2027 lost 2.25 points to trade at 52.5.

Also in the category, Brazil's bonds fell as its equities continued to suffer.

The 11% Brazilian bonds due 2040 dropped 0.55 point to 123.2 bid, 123.4 offered, while the 8 7/8% bonds due 2019 gave up 1.5 points to 93.5 bid, 95.5 offered.

Asia spreads wider

Asia widened out as investors kept after Treasuries on a sour day for stocks around the world.

In the Philippines, "lending activity continued to be robust in December," according to a statement from the central bank.

Outstanding loans increased 17.5% in December, the statement said.

Also, loans for industrial production increased by 18.3% in December, compared to an 18.4% increase in November.

In China, secretary of state Hillary Clinton arrived in Beijing as part of the conclusion of her Asian tour.

Talks with the Chinese government are expected to deal with trade, environmental policy and North Korean nuclear ambition.

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