Emerging markets still winning; demand brings heavier flow; spreads find recent tights

By Aaron Hochman-Zimmerman

New York, March 26 - Emerging markets went along with the gains in equities for another day and brought a renewed sense of urgency to many trading desks.

Traders worked at a frenzied pace at times to deal with the appetite for risk that was now eager to return to the market.

Slowly, more and more investors are willing to believe that the rally would last for a considerable amount of time, but no one was ready to definitively say the bottom of the market had come and gone.

On the primary side, the market fell quiet again after seeing major action earlier in the week, capped off by Peru's $1 billion deal.

Still investors were aware that issuers were lying in wait.

Abu Dhabi's non-deal roadshow was set to begin in Boston on Friday, with South Korea's Hana Bank slated to begin its own roadshow on Monday.

Another successful day on Wall Street chipped away at volatility, cutting it by 1.89 to close at 40.36, according to the VIX index. The index is a common measure of market volatility.

As a sector, building investor confidence helped emerging markets advance another 10 basis points to a spread of 606 bps, according to JPMorgan's EMBI+ index. The EMBI+ estimates the amount of extra yield investors will demand to hold assets in emerging market debt.

Emerging Europe in demand

Emerging European traders were bogged down with orders on Thursday as the rally had buyers clamoring for "all banks, all corporates," a trader said.

The interest was entirely market driven and across the board, he said.

"You name it, it's been in demand today," he said.

In Russia, the government run energy firm OAO Gazprom warned Ukraine not to move forward with European Union deals without prior consideration of Russian interests.

"Gazprom has the obligation to sanction any actions in connection with changes in the throughput capacity of Ukraine's export pipelines," Gazprom said in a statement.

"Furthermore, the Ukrainian gas transmission system is fully synchronized with the Unified Gas Supply System of Russia," the statement continued.

Meanwhile in Ukraine, prime minister Yulia Timoshenko said she hopes to return to the negotiation table to work out provisions for a $5 billion loan from Russia after Kiev secures the next tranche of support from the International Monetary Fund.

The Russian sovereigns due 2030 were spotted at 95.5 bid, 95.625 offered while the Ukrainian bonds due 2016 were quoted at 42 bid, 44 offered.

In Turkey, the government bonds due 2030 were flat at 135 bid, 136 offered.

LatAm holds rally pace

Equities and currencies were strong in Latin America and bonds followed suit on Thursday.

In Argentina, economic growth missed expectation slightly as January's growth rate hit 2.3%, below the government's expectation of 2.4%. But the figure was still up from 2% in December, 2008, the Buenos Aires Herald reported.

In Venezuela, president Hugo Chavez ordered the government bureaucracy to eliminate wasteful spending, reports said.

Meanwhile, the government may be ready to add another airline to its bureaucracy.

Some reports indicated that the government may use drug convictions to displace the owners of Aeropostal Alas de Venezuela.

The government already controls the Conviasa airline.

Also, late Wednesday, Peru priced $1 billion 10-year bonds in line with talk at a spread of Treasuries plus 437.5 bps (Ba1/BBB-/BBB-).

The bonds were sold at 99.5 with a coupon of 7 1/8% to yield 7.196%.

Goldman Sachs and JPMorgan acted as bookrunners for the registered deal.

Proceeds will be used to replenish over $500 million from the national treasury and to retire outstanding debt.

Asia climbs again

Asian credit traders were held busy by strong buying activity on the back of a persistent and possibly bear-busting rally.

In the Philippines, fourth quarter balance of payments showed a deficit of $1.5 billion, according to the central bank.

Still, the final figures of 2008 put the year's balance of payments at an $89 million surplus.

The surplus helped push up the country's gross international reserves, which finished the year at $37.6 billion, 11.2% higher than the 2007 year-end figures.

Also central bank governor Amando Tetangco said inflation is likely to ease to a range from 5.9% to 6.8%, compared to 7.3% in February.

"The decline in crude oil prices during the month and the downward adjustments in transport fares and electricity rates may have offset the upward price pressures due to a weaker peso," Tetangco said, according to the Manila Times.

The peso was seen trading at 48.12 to the dollar.

Also in Asia, Vietnam's finance ministry is expected to sell the last of three $100 million local bond issues on Friday.

The previous offers were sold on March 20 and March 24.

The dong has fallen since Monday as the government announced that the currency will be allowed to trade within 5% to either side of 16,980 to 1 dollar.

The dong was seen trading at 17755 to the dollar.

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