Emerging markets rally comes to a halt; JBS USA talks notes at 13%; spreads drift wider

By Aaron Hochman-Zimmerman

New York, April 20 - Emerging markets could not hold on to the rally which has lifted hopes for the last six weeks.

Credit markets were dragged down as Wall Street slipped on declining confidence in the financial sector.

Many in the market expected this drop as it came adjacent to first quarter earnings reports and in time with the end of a five- to six-week rally cycle, sources said.

Opinions still differed over how much longer the recession will last, but in recent sessions many were quick to point out that credit markets may be "overdone" and ripe for a readjustment.

Meanwhile from the major markets, volatility jumped back up, but remained below 40.00 as it added 5.24 to close at 39.18, according to the VIX index. The index is a frequently used gauge of market volatility.

As a sector emerging markets widened by 20 basis points to a spread of 563 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.

JBS USA talks, Ecuador offers 30 cents

Latin America widened as equities fell and Ecuador president Rafael Correa moved to finally answer questions over what was to become of his country's defaulted debt.

Correa offered investors out of the nation's bonds due 2012 and 2030 at just 30 cents to the dollar.

The entire $3.2 billion buyback is expected to be completed by the end of May.

Meanwhile in Brazil, the American arm of the Brazilian beef and chicken producer JBS USA, LLC announced talk in the 13% area for its offering of $400 million senior notes due 2014 (mid-single B ratings expected).

The bonds are expected at approximately a 5 point discount.

JPMorgan and Banc of America are running the deal which will see its books close Tuesday afternoon in New York. Pricing is scheduled for Wednesday morning.

Emerging Europe wider, rally fades

Emerging Europe lost its rally pace and traded lightly to open the week.

In Russia, the government plans to register new surveys of its territory on the arctic continental shelf with the United Nations, reported the RIA Novosti News Agency.

Russia as well as Canada, Denmark, Norway and the United States all have claims in the region which is believed to contain vast oil reserves.

"To bring to a close matters relating to the Arctic Ocean, we need to convince 21 members of the U.N. commission on the continental shelf that sections of the sea bed...are of a continental nature and are a continuation of the continent," said arctic councilmember Anton Vasilyev in the report.

Meanwhile in Ukraine, the leader of the country's chief opposition party, Viktor Yanukovich of the Party of Regions made clear his intent to challenge for the presidency in the Oct. 25 election.

Yanukovich also said he would consider joining forces with prime minister Yulia Timoshenko if a number of conditions can be met.

In Turkey, as investors wait to hear news of a new arrangement with the International Monetary Fund, the government announced a new round of talks with the international lenders in May.

Prime minister Recep Tayyip Erdogan spoke of his long-term optimism while in Germany at a birthday celebration for former chancellor Gerhard Schroeder.

Also in the sector, Hungary left its benchmark interest rate unchanged at 9.5% as it saw inflation ease and aims to preserve stability in the country's financial system.

The forint was seen trading at 231.995 to the dollar.

Asia falls with equities

Asian names traded lightly and lower as equities took a sharp turn to the downside.

In the Philippines, the Asian Development Bank made $10.5 billion in loans in 2008, a 5.3% increase over 2007, according to reports

The ADB has been pressing donors for increased funding to support its work, a statement said.

"In the face of the global financial crisis, probably this year and the next year we will have substantially large lending volumes," president Haruhiko Kuroda said in the statement.

The 2008 total set a record for the Manila-based lender, but another $10 billion may be necessary in the next two years, the ADB said.

In Indonesia, the government's energy firm PT Perushahaan Listrik Negara plans to shop for banks to coordinate a debt hedging, according to the Jakarta Post.

PLN would like to find hedging facilities for $3.3 billion of debt, half of its total debt, said finance director Setio Anggoro Dewo in the report.

"We have begun the selection process and we expect the first transaction to be done within two months," Setio said.

In Pakistan, the central bank lowered its benchmark rate 100 bps to 14%, according to a statement from the bank.

Bank governor Syed Salim Raza said inflation has improved to 19.1% in March, compared to its August, 2008 high of 25.3%.

Still, the current number is "higher than desired," the statement said.

The government expects inflation to decline to 14% in the fourth quarter and 8% in the first quarter of 2010.

The rupee was seen trading at 80.6 to the dollar.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.