Emerging markets end week higher; Mexico's new bonds gain 1 point; market spreads tighten again

By Aaron Hochman-Zimmerman

New York, Dec. 19 - Emerging markets improved again on Friday as U.S. Treasuries continued to help trim spreads.

Mexico's new 5.95% bonds were also well-received by the investors who had not already closed shop for the holidays.

"There's money on the side; they're looking to put it work," a strategist said.

The Mexican bonds due 2019 were better by 1 point at 100.75 after their head-turning debut on Thursday.

Elsewhere in trading, Turkey continued to see success even on a gloomier outlook from the World Bank.

The Turkish bonds due 2030 tacked on another 3.5 points to 142 bid.

"Overall, emerging markets bond funds posted net outflows of $69 million" for the week ended on Wednesday, according to data compiled by EPFR Global.

"But that was well below the $800 million they have averaged during their current 19-week losing run," EPFR said.

In the major markets, stocks were mixed as volatility fell by 2.41 to close at 44.93, according to the VIX index. The index is a frequently used gauge of market volatility.

Also, with more help from Treasuries, emerging markets narrowed by another 11 basis points to a spread of 701 bps, according to JPMorgan's EMBI+ index. The EMBI+ estimates the amount of extra yield investors will require to hold assets in emerging market debt.

The EMBI global diversified index, which represents sovereigns and quasi-sovereigns, was wider by 10 bps with a spread of 761 bps.

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

Mexico strong, others must wait

In Latin America, Mexico's bonds, which broke through the primary freeze on Thursday, traded well, a strategist said, but it will not likely be enough to push others into the market in the next few days.

The 5.95% Mexican bonds due 2019 were better by 1 point at 100.75 bid.

"It's a little too early for that," the strategist said when asked if Mexico's primary market bravado would encourage other high-grade sovereigns to issue before the end of the year.

"That was the last you could squeeze in," he said. "Even the first week is bad [for new issues]," he said about the first week of the New Year.

Any following issues will have to wait until "mid-month," he said, but by that point the market will have to wait due to a "huge, very negative earnings season," even if it is already priced in.

"Banks are going to write down their bad auto loans and credit card stuff," he said. "It's not the kind of environment to be issuing."

"But the sovs will have to issue because of balance of payment issues," he added. "We'll see a lot more sovs next year."

Plus, "there's always the possibility of a little rally ahead of [president-elect Barack] Obama's inauguration," he said, "then a sell on the fact."

LatAm creeps higher

Meanwhile, in Argentina, the economy grew at 6.5% in the third quarter, matching its growth in third-quarter 2007, but 1.3% higher than the second quarter, according to the Buenos Aires Herald.

The 8.28% Argentine government bonds due 2033 added 0.5 point to 29.5 bid, 30.5 offered.

In Venezuela, president Hugo Chavez approved a referendum vote on constitutional reforms that would allow him to retain his office indefinitely.

Chavez needed 2.5 million signatures on a petition to allow the vote, but the government claims 5 million signatures were collected.

Chavez has said he hopes to serve until 2021.

The 9¼% Venezuelan bonds due 2027 inched up by 0.05 point to 52.3 bid, 54.4 offered.

Also in Brazil, the 11% bonds due 2040 were quoted at 128.3 bid, 128.8 offered.

Emerging Europe closes week up

Emerging Europe was all but closed on Friday as investors looked ahead to Christmas.

Desks emptied early as investors began sneaking off for their holidays.

"The market is dead," a London-based trader said.

Still, beyond the market's narrow world, the governments in Russia and Ukraine attempted to reassure the European Union that any disputes between the two over gas debts would not interrupt shipments to the West.

Ukrainian president Viktor Yushchenko said after a recent $800 million payment to Russia to cover part of Kiev's $2 billion debt, "another $200 million will be transferred in the nearest time," he said, according to his official web site.

The Russian sovereign bonds due 2030 inched up 0.125 point to 85.5 bid, 87.5 offered.

Yushchenko also commented on the soaring value of the hryvnya as the central bank spiked interest rates to 22% from 18%.

The hryvnya is over-devalued but the causes for that are rather of psychological nature than of economic, he said.

Yushchenko also hoped to convey that "the [National Bank of Ukraine and Finance Ministry] convinced people that the factors for hryvnna's devaluation are already exhausted," he said.

The hryvnya was seen trading at 8.055 to the dollar.

Elsewhere in emerging Europe, Turkey's economy will likely grow by less than 2% in 2009, according to Ulrich Zachau, the World Bank's country director for Turkey, according to the Hurriyet Daily News.

As the global recession grabbed a firmer hold of Turkey in the third quarter, GDP grew by only 0.5% as unemployment touched 10.3% by the end of October, the report said.

The Turkish government bonds due 2030 jumped another 3.5 points to 142 bid, 145 offered.

Asia quiet, flat

Through the light volumes, Asia held relatively still as the investors made preparations before the brief winter hibernation between Christmas and New Year's.

Meanwhile in the Philippines, as revenues dropped the government ended November with a deficit of PHP 4.3 billion compared to a surplus of PHP 54.1 billion at the end of November 2007.

The November figures amount to a PHP 66.7 billion total deficit for the year, the Manila Times reported.

The Philippine government bonds due 2030 were seen at 110 bid, 116 offered.

Also in Indonesia, the government is seeking more investment capital from Middle Eastern nations during 2009, according to the Jakarta Post.

"I noticed that [Middle Eastern investors] had windfall profits of $1.6 trillion as of August this year from oil," investment coordinating board chairman Muhammad Lutfi said in the report.

"There are a number of new investors, including those from Qatar and United Arab Emirates, trying to go global. I'm sure they will be looking for new business opportunities here in the future, for example, in agriculture," he said.

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