Emerging markets remain stable; Croatia prices €750 million bonds; Russia to back IMF issue

By Aaron Hochman-Zimmerman

New York, May 28 - Emerging markets were hesitant to make severe movements on Thursday even as equities recovered and bloated Treasury yields let out a bit of pressure.

Argentina did make strides as an outperformer by adding 3 points to its discount bonds due 2033.

However, the primary pipeline was reopened by Croatia with its €750 million bonds.

Venezuela's Corporacion Andina de Fomento announced talk, while the Washington, D.C.-based International Monetary Fund trailed with an announcement of a bond issue of its own.

In the major markets, volatility twisted up and down but settled lower by 0.69 at 31.67, according to the VIX index. The index is a common measure of market volatility.

As a sector, emerging markets slid wider by 5 basis points to a spread of 449 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 wider by 8 bps with a spread of 471 bps.

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

Croatia prices, CAF talks

Croatia priced a €750 million 10-year global bond at 99.675 with a coupon of 6½% at a spread of Bunds plus 360 bps.

BNP Paribas, Deutsche Bank and Unicredit acted as bookrunners for the deal.

The issue had initially been scheduled to price during the week of May 11.

The bonds lost 2.175 points in trading to close at 97.5 bid.

On the corporate side, Corporacion Andina de Fomento announced talk of Treasuries plus 450 bps for its $1 billion 10-year senior unsecured bonds (A1/A+/A+).

Merrill Lynch and Credit Suisse will act as bookrunners for the registered offering.

The bonds were expected to price Thursday during New York's afternoon.

Proceeds from the sale will be used for general corporate purposes.

Corporacion Andina de Fomento is a Caracas, Venezuela-based development lender.

Also, a new issue was examined by a potential first-time issuer, although Russia has already agreed to purchase up to $10 billion in the first debt issue from the International Monetary Fund, managing director Dominique Strauss-Kahn said in a statement.

"I am very gratified by the Russian Federation's intention to invest in IMF paper. It is our hope that other Fund members will join this effort," he said.

The groundwork is being established in order for the issuance of the bonds "as soon as possible," Strauss-Kahn said.

Russia's local loans

Elsewhere, the government of Belarus asked Moscow for a $9 billion loan in order to build a nuclear power facility, reports said.

Even as Moscow considered the new request it reacted to Minsk's refusal of a $500 million loan in rubles, saying it preferred dollars.

Relations between the two former Soviet republics have been traditionally contentious.

Also in the former Soviet Union, Ukraine's direct external debt fell by 0.2%, or $18.7 million, to $10.8 billion as of April 30, the Finance Ministry said, according to the Kyiv Post.

Conversely, direct internal debt was 6.4%, or 3 billion hrvynia, higher at 50.6 billion hrvynia.

The hrvynia was seen trading at 7.655 to the dollar.

Meanwhile, levels around emerging Europe continued to settle as Treasury yields remained elevated.

The Russian bonds due 2030 were quoted at 99½ bid, 100 offered.

LatAm shows real strength

Spreads were tighter in Latin America and not all of the tightening can be written off as an artificial function of Treasury yields, a strategist said.

Argentina's bonds outperformed, which suggests that Treasuries are not the only factor.

"The IMF has provided a huge backstop for emerging markets, and that seems to be looked at as a positive," he said.

Meanwhile, in the primary it feels as though some corporates are working to bring new deals, but "I don't have a sense that there's anything close," a strategist said.

Elsewhere, Venezuela's Foreign Ministry was busy explaining away a comment made by president Hugo Chavez to Brazil president Luiz Inacio Lula da Silva, according to the Buenos Aires Herald.

According to an earlier report, the ministry said Chavez was making a "joke" when he told Lula that Brazilian firms were safe from nationalization during a meeting of Mercosur leaders. The Latin American trade bloc met in Brazil to consider Venezuela's membership.

The ministry began to make excuses for Chavez under pressure from Argentina president Cristina Kirchner, who saw Techint Group's Argentine arm Siderurgica del Orinoco CA (Sidor) lost to nationalization.

The intrigue did little to effect the secondary, but "it sounds like good television," the strategist said.

The 8.28% Argentine discount bonds due 2033 added 3 points to 42½ bid, 44½ offered.

The 9¼% Venezuela government bonds due 2027 were quoted at 62½ bid, 63 offered.

Asia seen calmer

Asia continued to calm down after its mini-nuclear crisis involving a North Korean bomb and missile test.

With the exception of the skyrocketing Hang Seng index, even Asian equities were calm.

"That doesn't really seem to be going anywhere," a strategist said about the story and its effects on South Korea and the region.

"That always comes back to haunt everybody," he said about the cyclical political disruptions provided by Pyongyang.

The South Korean five-year CDS was seen at 172 bps bid, 189 bps offered.

In the Philippines, the central bank eased off interest rates by 25 bps to a 4¼% overnight borrowing rate and a 6¼% overnight lending rate.

"While there are encouraging signs that the global slowdown may be bottoming out, it is too early to conclude that global economic conditions are clearly moving toward normalcy," the central bank said in a statement.

The monetary board also pointed to a disappointing 0.4% first-quarter GDP growth rate as a factor in the decision to lower rates.

The peso was seen trading at 47.445 to the dollar.

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