Emerging markets slightly better; Venezuela rumors $1.5 billion buyback; Banco Fibra prices $100 million

By Aaron Hochman-Zimmerman

New York, May 30 - Prices and spreads were both slightly improved across emerging markets on Friday.

Brazil's sovereigns traded well, which helped encourage other Latin American credits. The bonds due 2037 added 2.75 points as a rally from Fitch Ratings' upgrade of the sovereign to investment grade continued.

Brazil also made news in the primary as its Banco Fibra SA priced $100 million.

On Friday, equities were trading mixed, which allowed volatility to drop by 0.31 to 17.83, according to the VIX index. The index is an often used yardstick of market volatility.

As a sector, emerging markets tightened by 3 basis points to a spread of 242 bps, according to JPMorgan's EMBI+ index. The EMBI+ determines the amount of extra yield investors will demand to hold assets in emerging markets debt.

Brazil leads LatAm higher

Latin American trading ended the week stronger, with Brazil in the lead, still beaming from its recent upgrade to investment grade by Fitch.

"Everything is looking chipper for Brazil," said Enrique Alvarez, a Latin America debt strategist at think tank IDEAglobal.

The 7 1/8% bonds due 2037 soared by 2.75 points to 117.25 bid, 117.75 offered.

In Argentina, the government offered to lower the export taxes on farm products as well as expand the amount of small farmers who qualify for tax rebates, but "it was not enough to buy any sort of enthusiasm" from the farmers, Alvarez said.

"They are sort of at a standstill," he said.

The 8.28% Argentine government bonds due 2033 also stood still at 81.5 bid, 82 offered.

In Colombia, in order to keep the inflation of the peso under control, the government announced initiatives to keep foreign direct investment in the country for at least two years.

Also, foreign investors will have to leave a special deposit of 50% rather than 40% on short-term capital.

The peso was seen trading at 1,745.8 to the dollar.

The Colombian sovereign bonds due 2024 were better by 0.5 point to 121 bid, 122.5 offered.

Buyback rumors in Venezuela

"Something is going on in Venezuela," a portfolio manager said.

Many investors have been hearing rumors of up to a $1.5 billion bond buyback by the government.

If it were to happen "it needs assembly approval, then government approval," Alvarez said, adding that it could happen as soon as the week of June 2.

If it is approved "this will target some of the older paper," he said about the higher yielding long-term notes.

"Some of the newer stuff has no benefit" for the government to buy back, he said.

"The 9¼% Venezuela '27 is the one people are following," the portfolio manager said.

The bonds due 2027 were lower by 0.25 point to 93.75 bid, 94.5 offered.

Also in Venezuela, representatives from countries around the Latin American sector were in Caracas to discuss a joint strategy to combat rising food prices.

The World Bank has offered struggling nations a $1.2 billion food grant package with $200 million set aside for the highest-priority populations in places such as Togo, Yemen and Tajikistan.

The meetings will lead into a three-day U.N. meeting on food prices in Rome beginning on Tuesday, the BBC reported.

Banco Fibra prices $100 million

In the primary market, Banco Fibra SA (BB-/) snuck one in before the weekend as it priced $100 million three-year bonds at 99.337 with a coupon of 7% to yield 7¼%.

The issue was talked in the 7¼% area.

Santander and Standard Bank acted as the bookrunners for the deal.

The bank is issuing through its branch in the Cayman Islands.

Banco Fibra is a Sao Paulo-based retail and commercial bank.

The issue was later seen quoted at 99.5 bid, 99.75 offered.

"The banking supply in banking names in Brazil is quite huge at the moment," a portfolio manager said.

"If people wanted to get involved, there have been plenty of opportunities," he said.

Elsewhere, Singapore's Hotel Properties Ltd. announced its multicurrency medium-term note program was upsized to S$800 million from S$650 million.

Proceeds from the notes will be used for refinancing debt and for general working capital.

Hotel Properties is a Singapore-based hotel and real estate management firm.

Asia survives headlines

Asian trading has been "pretty quiet for a couple sessions," a trader said despite unnerving political headlines.

"There's definitely some currents," he said, but they have not taken too much of a toll on the major issues.

Of the most notable, "Vietnam has been the headline," he said, as its five-year CDS was wider by almost 100 bps for the week.

The news from Vietnam and from Thailand "is just dragging the rest of the universe out with it," the trader said.

Still, the events have only a slight direct impact on the dollar-bond market, but they are "weighing on sentiment," he added.

In the Philippines, after the government cut its GDP growth forecast to between 5.7% and 6.5% from 6.3% to 7%, the central bank said the slower pace of growth in the first quarter may also slow inflation, which recently hit a three-year high at 8.3%.

"The slowdown can provide some relief to inflation, as it reduces pressure from the demand side," bank governor Amando Tetangco said, according to the Manila Times.

Many believe the bank is caught between the slowdown in the world economy on the dovish side and inflation on the hawkish side.

The Philippine sovereign bonds due 2030 were flat at 129.5 bid, 130 offered while the five-year CDS was 10 bps to 15 bps wider on the week.

In Indonesia, the energy shortage will persist until the planned 10,000 megawatt series of coal-burning power plants are operational, said Sofyan Djalil, minister of state enterprises.

The plants are scheduled to be constructed by 2010, according to the Jakarta Post.

Currently the Java-Bali power grid has a 15,000 megawatt capacity, which is short of the region's estimated 16,251 demand. The discrepancy has created the need for rolling blackouts.

The Indonesian government bonds due 2017 were also unchanged at 99.75 bid, 100.25 offered while the five-year CDS was about 30 bps wider on the week.

In Pakistan, president Pervez Musharraf faced calls for his resignation from the ruling coalition and its allies.

Calls came from former prime minister Nawaz Shariff's Pakistani Peoples' Party (PPP), which is no longer a member of the coalition but is aligned with it in parliament.

The Pakistani government bonds due 2017 managed to bounce back by 2 points to 78 bid, 82 offered while the five-year CDS was about 50 bps to 60 bps wider on the week.

Controversial Thai minister resigns

In Thailand, minister Jakrapob Penkair resigned before he was formally charged with lese majeste, the crime of insulting King Bhumibol Adulyadej.

The formal charge is still expected and may carry a 15-year prison sentence if convicted.

Penkair is seen as an ally of former prime minister Thaksin Shinawatra, who is accused by many in Thailand of corruption and bearing an opposition to the popular monarchy.

Emerging Europe ends week mixed

Emerging Europe traded mixed as investors preferred to concentrate on the better situation in the primary market.

"I personally think we are running out of steam a little bit," a portfolio manager said, "traders are rather long on risk and people are not prepared to take on any more."

However, in the primary market "the environment is quite constructive," although there is likely to be "a pause going into the third quarter," he said.

In Russia, accumulated foreign investments surpassed $220 billion, according to deputy prime minister Alexander Zhukov, who spoke at an economic forum on Friday.

"We are expecting further inflow of investors," he told reporters.

"Our policy in this sphere has two tasks - to make the Russian corporative sector comprehensible, attractive and profitable for investors and to make it more stable to the fluctuations of the world business climate thanks to a higher transparency of our companies, the quality of managerial solutions and the responsibility of the board of directors," he said.

The Russian government bonds due 2030 added 0.45 point to 114.7 bid, 114 offered.

Meanwhile, in Georgia 15 ambassadors from around the European Union arrived in Abkhazia to discuss "a wide range of matters connected with the situation in the area of the Georgian-Abkhazian standoff," said Sergei Shamba, foreign minister of the unrecognized republic of Abkhazia.

"We once and forever decided to build our independent state, and nobody will make us turn away from this path, including the European Union," Abkhazian president Sergei Bagapsh said at a news conference on Thursday, according to the Itar-Tass News Agency.

Also, in Turkey the sovereign bonds due 2030 lost 1 point to 150.5 bid, 152.25 offered.

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