Emerging markets hang on; Asia remains strong; investors watch Washington, D.C., for direction

By Aaron Hochman-Zimmerman

New York, March 24 - Emerging markets as a category skipped the equity rollercoaster ride but still traded mixed in its own less volatile way.

Investors of all stripes were eager to hear more about the U.S. government's plan to fix the major banks and ease the burden of the toxic assets that have plagued economies around the world.

"We're much more concerned about a 7% rally in equities" than anything that goes on within the emerging countries, a trader said

Meanwhile in trading, the status quo was not pulled from its moorings.

Latin America slipped slightly as Asia climbed higher and the fulcrum, emerging Europe, tilted toward the positive side.

From here, "I'm torn between: we go higher before we come off or we just come off," the trader said.

The last few days have been encouraging, but "it's not a case of we're out of the woods," he said.

From the major markets, volatility eased by just 0.30 to 42.93, according to the VIX index. The index is a common measure of market volatility.

As a sector emerging markets nearly held still as spreads tightened by 3 basis points to a spread of 629 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.

Asia leads again

Asian credits were not ready to let a rally slip.

"It's not really pulling back that much," a trader said, but most of the attention was focused on Washington, D.C.

"The market has been taken by surprise," he said, and many investors were trying to figure out the implications of the Treasury's new toxic asset purchase program.

In Indonesia, "the news has been steadily constructive," the trader said.

Indonesian credit is one which can provide some activity in a positive direction, "people are going to buy it," he said.

Meanwhile, the central bank announced that it agreed to a $15 billion currency swap with China to provide for greater stability for the rupiah.

The currency support should help the Indonesian economy, but Jakarta will need more help, the reports said.

Indonesia has $22.6 billion in corporate debt that matures in 2009. The payments may deplete nearly half of the current $54 billion in foreign cash reserves.

The Indonesian sovereigns due 2030 were quoted at 108.5 bid, 109.5 offered.

Also in the Philippines, the government bonds due 2030 tacked on 1 point to 117.5 bid, 118.5 offered.

Pakistan's bonds due 2017 held toward the recent highs at 48 bid, 51 offered.

Emerging Europe takes profits

Emerging Europe saw "a bit of profit taking" after Monday's rally, a London-based trader said.

It will be difficult to call the tone over the coming days, the trader said, but the larger picture looks as though "we'll overshoot and we'll stay volatile," he said.

Turkey continued to scratch higher toward its highs and may look to issue sometime soon, the trader said.

Turkey is expected to hammer out a deal for a renewed standby agreement with the International Monetary Fund after March 29 elections and may begin the issuance process then, the trader said.

The Turkish government bonds due 2030 improved by 0.75 point to 135.5 bid, 136 offered.

In Russia, president Dmitry Medvedev said he will not meet with Ukraine about gas contracts until Kiev finalizes its pipeline modernization plan with the European Union, reports said.

Ukraine president Victor Yushchenko told reporters Kiev plans to attract $2.5 billion into reconstruction of the gas transit system with most of the funds used for reconstruction of the pipeline, underground storages and measuring stations, according to Yushchenko's official web site.

Russia said it was not invited into talks between the European Union and Ukraine, and some in Russia are concerned about Ukraine's continuing overtures to the West.

The Ukrainian bonds due 2016 were unchanged at 45 bid, 48 offered.

The Russian bonds due 2030 were better by 0.75 point at 94.5 bid, 95 offered.

LatAm lags

Latin America remained "sort of soft," said Enrique Alvarez, a Latin America debt strategist at think tank IDEAglobal, as all eyes were on the U.S. Treasury Department and Federal Reserve.

A large period of wait and see will take hold, but there is still "not a whole lot of confidence," he said.

There will be a "long stretch of potholes in the road ahead relating to economic performance," he said.

Meanwhile in Argentina, road blockades went on for another day, but the government seemed no closer to backing off of its stance on soy export taxes.

The 8.28% Argentine discount bonds due 2033 fell 1 point to 24.5 bid, 26.875 offered.

In Venezuela, while oil was seen trading at $54 per barrel, the 9¼% Venezuelan sovereigns due 2027 slipped 0.25 point to 56.3 bid, 57.625 offered.

In Brazil, the 5 7/8% government bonds due 2019 gave up 1 point to 97.3 bid, 98 offered.

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