Emerging markets see new buying; Argentina bounces back; primary tone ends on high note

By Aaron Hochman-Zimmerman

New York, April 18 - Friday punctuated a strong week in emerging markets as spreads continued to tighten and the primary market built steam for another round of new deals.

Trading saw spreads narrow by 10 basis points.

"It does feel like the market is starting to get better," a syndicate official said.

The market was "much better, obviously due to the price action in equity market," a strategist said.

"Investors feel like taking risk on, but there are question marks to the market," he added.

The pricing streak the primary market held onto during the week was kept alive at six days by a local-currency deal, but the week still left investors with a positive outlook toward new issues.

"Next week should be good ... People are starting to get out there," the official said.

Also, inflows into emerging market bond funds hit $258 million for the week ended Wednesday, according to data compiled by EPFR Global.

The number makes the second straight week of inflows into emerging markets.

"Some stability is starting to creep back in the market here," a syndicate desk official said.

The official noted that for the first time in 2008, volatility dropped below 20.00 during the session as it lost 0.24 to close at 20.13, according to the VIX index. The index is a common measure of market volatility.

As Treasuries were rolled back, emerging markets narrowed by 10 bps to a spread of 253 bps, according to JPMorgan's EMBI+ index. The EMBI+ calculates the amount of extra yield investors will demand to hold assets in emerging markets debt.

Emerging Europe closes week tighter

Spurred by a resurgent primary and a soaring equity market, emerging Europe traded stronger as spreads tightened across all of emerging markets.

In Russia, outgoing president Vladimir Putin said he plans to concentrate on domestic issues as prime minister, according to the RIA Novosti News Agency.

"I am not going to the G8. There will be international meetings, fewer of them. I have to deal with solving social and economic problems," Putin said in the report.

Putin will also serve as the United Russia party chairman.

His successor, Dmitry Medvedev, will be sworn in on May 2.

The Russian sovereign bonds due 2030 were quoted at 114.5 bid, 114.625 offered.

In corporates, the market was encouraged by Thursday's pricing of $1.6 billion of bonds from Russian steelmaker Evraz Group SA.

The two tranches both priced at par and were seen better by about 1.5 points on Friday.

Meanwhile in Ukraine, president Viktor Yushchenko stated for the first time publicly that Ukraine did not receive a warm welcome to join the NATO alliance.

"I want to say frankly - we are not wanted rather than wanted," he said at a conference in Donetsk, Ukraine, according to the Itar-Tass News Agency.

Yushchenko repeated his stance that Ukraine's membership in NATO should not be perceived as a threat to regional security, as it is largely considered in Russia.

"We are not talking at present about joining or not joining NATO. We are talking about intensive relations and no more. And later, when a time comes, we shall in the most democratic way give an answer as to whether we want or do not want to go to NATO," he said.

After the April 3 NATO summit in Bucharest, Yushchenko promised to revisit the question of membership in two years.

The Ukrainian government bonds due 2016 were spotted at 99.85 bid, 100.85 offered.

The price of rice in Turkey

Rice concerns struck Turkey's economy as the agriculture ministry announced it will import 100,000 tons in order to ease prices, the Turkish Daily News reported.

The rising cost is largely due to speculators, said agriculture minister Mehdi Eker in the report.

"The problem is that some companies hold rice and unprocessed rice in stock and don't introduce them to the markets, waiting for prices to rise further while also benefiting from global developments on the issue," he said.

The country has enough rice reserves to last until the end of August, but the minister still briefly discussed a plan to halt rice sales for a short period of time should it become necessary.

The Turkish sovereign bonds due 2030 were seen at 153 bid, 153.25 offered.

Primary stronger after rehab week

On Friday, the primary market pushed the pricing streak to six days with a local-currency deal, but it still had a much improved tone after a productive week.

"I definitely think it's a positive for the market because it left a good taste in people's mouths," a syndicate official said about the Evraz deal and its reflection about the upcoming benchmark issue from Russia's OJSC Vimpelcom.

"It's pretty quiet today," but there will likely be another issue on Monday, he hinted.

Israel's Ampal-American Israel Corp. (A2, local) priced an upsized NIS 466 million bond with a coupon of 6¾%, according to a press release.

Ampal-American is a Tel Aviv-based investment firm.

Meanwhile, Merrill Lynch & Co. (A1/A+) announced plans to offer ruble-denominated three-year bonds. The coupon is set at 7¼% with the deal expected to price at par on April 29.

The deal will settle in dollars or euros.

Merrill Lynch is a New York-based investment bank.

LatAm feels strong as spreads narrow

Latin American trading took a cue from stocks to tighten and allow investors to add some risk to portfolios.

Still, the market has a few closets to clean, a strategist said.

In Mexico, the central bank voted to maintain the overnight lending rate at 7.5%, according to the bank's web site.

The U.S. Federal Reserve has taken action to prevent a widening credit crisis, but for the rest of the year greater risks to inflation persist, including higher food and commodity prices, the bank said in an accompanying statement.

The Mexican sovereigns due 2017 were spotted at 105.1 bid.

In Venezuela, negotiations are expected to begin between the government and Luxembourg's Ternium SA, which was told on April 10 that its Venezuelan Sidor steel plant would be nationalized.

The 9¼% Venezuelan sovereigns due 2027 were quoted lower by 1.25 points at 94.5 bid.

"Venezuela is the underperformer in Latin America," a strategist said on Friday.

Also in Latin America, Brazil's 7 1/8% bonds due 2037 were seen better by 0.65 point at 113 bid, 113.5 offered.

Conflict, wild grass flair in Argentina

In Argentina, president Cristina Kirchner blamed farmers for the smoke that has hung over Buenos Aires and other cities in recent days.

The farmers deny lighting what the government considers "irresponsible" protest brush fires.

Labor leaders have accused interior minister Florencio Randazzo of trying to spoil negotiations by exaggerating the damage the fires caused.

As the government has shown little interest in lowering export taxes on many farm products, strikes are likely to resume on May 2, after international labor day on May 1.

The 8.28% Argentine discount bonds due 2033 were up 1.4 points from the year's low at 82.75 bid, 83.25 offered.

Asia improves with equities

Asian trading was pulled up by the equity market, although the sector continues to see high inflation and commodity prices.

The economy of the Philippines is the most susceptible to increasing commodity prices, a UBS research report said, according to the Manila Times.

Rice exporting countries, such as Thailand and Vietnam will see the biggest benefits and may even encourage the rising prices by limiting supply, the report said.

"There's an international council that monitors grain prices and comes up with an assessment on world prices. It said prices would stabilize in the second quarter of the year. So, there is nothing to worry about," said the Philippines' press secretary, Ingnacio Bunye.

The Philippine government bonds due 2030 were seen at 132.5 bid.

Indonesia has the third-greatest potential in the Asian sphere behind India and China, and ING report said, according to the Jakarta Post.

The ING investor dashboard survey gave the three scores of 168, 136 and 131, respectively, out of a possible 200.

The survey also included Hong Kong, South Korea, the Philippines, Japan and Australia.

The Indonesian sovereigns due 2017 were quoted at 102.875 bid.

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