Emerging markets soar higher; Kookmin Bank prices $1 billion bonds; strong tone unshakable

By Aaron Hochman-Zimmerman

New York, May 6 - Emerging markets bounded higher again on Wednesday while many in the sector wondered what could possibly stop the fierce charge upward.

"It's like people forgot everything that happened," a buyside source said.

"It seems like it isn't fading away," the buysider said, although the market feels overbought and overdue for a correction.

"We'll see what happens on Friday," but "I can't imagine it's all over," the buysider said about the recession.

Argentina made the biggest leaps on the day as its discount bonds due 2033 nearly doubled Tuesday's gains by adding 5½ points.

On the primary side, South Korea's Kookmin Bank priced $1 billion five-year bonds, which rapidly tightened nearly 30 basis points.

South Africa also fueled rumors of a new deal along with Brazil's corporates Petroleo Brasileiro SA and Banco do Brasil SA.

Meanwhile in the major markets, equities waffled, but picked up in the afternoon as volatility dipped 0.91 to close at 32.45, according to the VIX index. The index is an often used gauge of market volatility.

The rally helped emerging markets crunch down its spread by 16 bps to 485 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.

Kookmin prices $1 billion

Kookmin Bank priced a $1 billion five-year bond at 98.68 with a coupon of 7¼% to yield 7.572% and at a spread of Treasuries plus 550 bps (A2/A/A+).

Citigroup and HSBC acted as bookrunners for the deal.

The bonds are asset-backed covered bonds.

Kookmin Bank is a Seoul-based retail and commercial lender.

The bonds performed well and tightened to a spread of 517 bps, a buysider said.

Also in the primary, South Africa was believed to have mandated Absa Bank, JPMorgan and Standard Bank to run a dollar-denominated benchmark deal in order to refinance the 2009 bonds, which are due May 19.

The South African bonds due 2022 were seen at 92 bid, 94 offered.

LatAm launches on IMF, commodities

Latin America was charging hard on Wednesday, even outperforming equities, a syndicate official said.

"It's got nothing to do with equities," he said.

Many in the market were encouraged by an International Monetary Fund report that touted the region's ability to recover from the crisis.

"The region has a much higher level of preparedness today in terms of stronger public finances and financial sectors, and policies that help cushion external shocks. As a result, the region is not facing a fiscal crisis, as some other developing regions, or a banking crisis, as the United States and much of Europe," said Nicolas Eyzaguirre, director of the IMF's Western Hemisphere department.

"We expect the region to keep up with world growth, which, in relative terms, is a positive development," he added, according to a statement.

In Argentina, 8.28% discount bonds due 2033 launched up by 5½ points to 37½ bid, 38¼ offered.

Some have said that Argentina's success is due to "help from China, but that's just hearsay," the syndicate official said.

Commodity prices were strong as oil found a recent high over $56 per barrel as Venezuela's 9¼% bonds due 2027 added 1½ points to 68¼ bid, 68¾ offered.

As Mexico returned to work after a government-imposed work slow-down to stem the spread of swine (H1N1) flu, the 5.95% bonds due 2019 took on 1.4 points to 101.9 bid, 103 offered.

In Brazil, the 11% government bonds due 2040 added 1¼ point to 131½ bid, 131.65 offered, while the 7 1/8% bonds due 2019 added 0.55 point to 101 bid, 101.1 offered.

Colombia's 7 3/8% bonds due 2019 tacked on 0.6 point to 107 bid, 107.45 offered.

Emerging Europe rolls higher

Emerging Europe continued to take advantage of overall market strength and an appetite for risk.

Poland received a $20.6 billion precautionary line of credit from the IMF.

"While Poland is being hit hard by the global crisis, it has preserved access to international capital markets, contrary to many peers in the region," Poul Thomsen, the IMF's mission chief for Poland, said in a press release.

"We agree with the authorities that the FCL [flexible credit line] will help preserve its access to capital markets, by signaling the IMF's strong endorsement of policies and by providing assurances that the national bank has adequate reserves to intervene if the situation gets worse than expected," he said.

In Russia, the country has shipped nearly $7 billion of gas and $16.5 billion of oil in the first quarter, according to the RIA Novosti News Agency.

Exports outside the Commonwealth of Independent States fell by 61%, while the former Soviet states only saw a drop of 49.8%.

The Russian government bonds due 2030 were better by 1 3/8 points at 99¾ bid, 100 offered.

In Ukraine, prime minister Yulia Timoshenko said she sees no reason to retool the country's current budget, the Unian News Agency reported.

The government has been recently called upon to reform the budget, but it has already been overdrawn by 4% so far this year, she said.

In April, the budget was exceeded by 10.7%, she said in the report; still, the treasury has been replenished.

"The work has been very complicated," she said.

"I would like to thank all the government and the Finance Ministry for we have being doing our best to keep the country in order and have been stably fulfilling the budget," she added.

Meanwhile in Turkey, the sovereign bonds due 2019 improved by 1 1/8 point to 102 bid, 102½ offered.

Asia riding rally waves

Asia climbed higher again on Wednesday as many were still baffled by the rally, which showed no signs of letting up.

Some have suggested that the rally will fall flat when the U.S. stimulus package somehow runs out, but "the inclination was to save it, not to spend it," a buysider said.

Pushing levels higher "you've got China pulling its weight" and supporting a commodity play, largely stemming from Latin America, the buysider said. "The government there has spent so much on infrastructure."

In the immediate future, "I don't know what's going to cause a sell-off other than a wave of negative data," the buysider said.

Indonesia's bonds continued to perform well as $1.4 billion in contracts were signed at the 33rd annual convention of the Indonesian Petroleum Association, according to the Jakarta Post.

The government was pleased with the results.

"This indicates that today Indonesia is still an attractive place for oil and gas exploration activities," said energy and mineral resources minister Purnomo Yusgiantoro in the report.

The Indonesian bonds due 2019 added 2 points to 127 bid, 129 offered.

Also in the Philippines, the government bonds due 2030 added ¾ point to 112¾ bid, 113¾ offered.

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