Emerging markets creep tighter; Petrobras to reopen bonds due 2019; IMF closer to bond debut

By Aaron Hochman-Zimmerman

New York, July 1 - Emerging markets trading was all but closed for the Independence Day holiday in the United States; however, it was the primary market that drew attention.

Brazil's Petroleo Brasileiro SA announced that it will retap its 7 7/8% bonds.

Also, the International Monetary Fund was busy making preparations for its first debt issuance.

In what little trading there was, spreads were mildly tighter as U.S. equities began the second half on a positive note.

Volatility sank sharply in early trading but largely returned in the afternoon to end lower by just 0.13 at 26.22, according to the VIX index. The index is a common measure of market volatility.

As a sector, emerging markets narrowed by 4 basis points to a spread of 420 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.

The EMBI global diversified index, which represents sovereigns and quasi-sovereigns, was tighter by 3 bps with a spread of 434 bps.

The diversified index has a less strict liquidity rule for inclusion.

Petrobras to open 2019s

Petrobras said it will offer a dollar-denominated reopening of its 7 7/8% bonds due 2019.

Citigroup, HSBC, JPMorgan and Santander Investment will act as bookrunners for the registered offering.

The original $1.5 billion of the notes were priced on Feb. 4, 2009 at 98.28 to yield 8 1/8% and are due March 15, 2019.

Proceeds will be used to repay a portion of the $4 billion owed to a consortium of financiers.

Petrobras is a Rio de Janeiro-based government-run energy firm.

IMF may bring $150 billion

The IMF took another step toward the issuance of its own paper in its own currency.

The executive board approved the issuance, and the first sale will likely be made as soon as one of the interested parties concludes its purchase agreement with the IMF.

Brazil, Russia, India and China have all expressed interest in the new paper.

China has said it will purchase as much as $50 billion in bonds while its BRIC counterparts have considered purchases of $10 billion each.

The five-year bonds will be denominated in Special Drawing Rights. The currency is a basket of the U.S. dollar, euro, yen and British pound.

The bonds will pay interest at a weighted average of three-month interest rates in these currencies.

The bonds will be available to trade within the "official sector," a statement said, which includes member state central banks and 15 multilateral institutions.

"This innovative framework will further strengthen the IMF's capacity to bring rapid assistance to its members as and when it is needed," managing director Dominique Strauss-Kahn said in the statement.

Russia turns to Turkey

Russia extended an offer to Turkey in order to cut Ankara in on its South Stream gas pipeline, reports said.

"We hope that the Turkish side will look at our offer and that we will cooperate further so that our offer is more attractive and clear to our partners," said deputy prime minister Igor Sechin.

Two competing proposals bypass Ukraine, but the Nabucco pipeline connects the Caspian Sea with Western Europe via Georgia and Turkey. The South Stream pipeline would bypass Turkey and travel beneath the Black Sea to Bulgaria.

Turkey's support may help Russia secure a future for its favored South Stream plan.

Asia reports numbers

Asian credit traded quietly as investors left their desks for summer holidays.

Meanwhile in the Philippines, external debt fell by $1.4 billion to $52.5 billion from December to the end of March, according to the central bank.

"Major external debt indicators remained at prudent levels in the first quarter of the year," said bank governor Amando Tetangco in a statement.

In India, exports volume fell to $11 billion in May, a 29.2% drop from April's total, the BBC reported.

Imports also fell 39.2% from May 2008.

Meanwhile in China, protestors filled the streets in Hong Kong demanding an expansion of liberties 12 years after the city was returned to Chinese control.

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