Emerging markets soften; Argentina stops fall; Indonesia ahead of Jamaica in trading

By Aaron Hochman-Zimmerman

New York, June 18 - Emerging markets were mostly weaker on Wednesday with notably strong performances from Indonesia and Argentina.

Argentina showed only a small bounce of 0.35 point by its benchmark bonds due 2033, but it was able to climb back from the yearly low it set on Tuesday.

Indonesia outperformed Asia with its newly retapped credits.

Still, the general trading sentiment was that "people are not ready to pick up new high beta risk," a strategist said.

In the primary, the pipeline did not turn out as much production as it managed during Tuesday's session, but four Russian banks stood on the brink of pricing as well as deals from corporate issuers around the emerging world.

However, "there are still a lot of jitters out there," a trader said.

Meanwhile, weak equities pushed volatility higher by 1.11 to 22.24, according to the VIX index. The index is a frequently used yardstick of market volatility.

LatAm follows Argentina up

Flows picked up in Latin America as Argentina showed improvement while the other highly watched bonds followed its lead.

In Brazil, the 7 1/8% bonds due 2037 added 0.3 point to 113.65 bid, 113.75 offered, while the 11% bonds due 2040 fell 0.2 point to 132.4 bid, 132.5 offered.

The Venezuela 9¼% sovereigns due 2027 took on 0.4 point to 95.5 bid, 96.35 offered.

Calmer in Argentina

In Argentina, it is not so much what she says, but how she says it, that has made negotiations with the farmers so difficult, a market source said about president Cristina Kirchner.

Still, Kirchner delivered the package of export tariffs to the congress for their approval in an unexpected move.

No riders may be attached to the bill, which leaves the Peronist majority in the senate to vote it up or down, the source said.

However, the wildcards are the provincial congressmen who may side with their working class constituencies.

Also, in a speech comforting to some, another market source said, former president Nestor Kirchner said the government is not in danger of collapse.

He also quieted any rumors spread by the anti-government Luis D'Elia, who accused former president Eduardo Duhalde of plotting a coup against Cristina Kirchner.

The 8.28% Argentine discount bonds due 2033 added 0.35 point to 78 bid, 79 offered.

Jamaica 'really flopped'

After the release of the final term sheet of the $350 million bonds Jamaica (B1/B/B+) issued at 97.498 with a coupon of 8% to yield 8 3/8%, a strategist said the deal "really flopped in the market."

The deal priced with a spread of Treasuries plus 416.8 basis points.

The final payment on the 10-year average life bonds is due in 2019.

Deutsche Bank and Morgan Stanley acted as bookrunners for the registered deal.

Later the bonds traded down 1.5 points and "the whole curve got repriced 20 bps," the strategist said.

"It's been a difficult credit out there," he said, but "in general terms the new levels should provide an opportunity to step in and buy some paper."

The 8% Jamaica bonds due 2019 were quoted at 95.25 bid, 95.75 offered.

It is "an ugly situation," a trader said. "The sun ain't shining in Jamaica."

Indonesia leads in Asia

Asia traded "kind of weak," but "not scarily so," a trader said, using March as a comparison.

"Indonesia is holding pretty well," he said, after pricing the $2.2 billion deal, which was "a little larger than expected."

Still, the broader market was sinking as a reaction to the rally at the end of last week, he said.

In Indonesia, a partner of the Fisheries and Maritime Affairs Ministry, David Wiranata, was arrested by the Corruption Eradication Commission (KPK) and charged with arranging almost $200,000 in bribes for ministry officials, according to the Jakarta Post.

Meanwhile, the former junior attorney general for special crime, Kemas Yahya Rahman, was questioned by the attorney general's office after authorities learned he had a phone conversation with alleged briber Artalyta Suryani.

The conversation was discovered during Artalya's trial for corruption.

Kemas was originally fired after one of his subordinates received a bribe from Artalya for $660,000.

The Indonesian bonds due 2017 were flat at 97.5 bid, while the newly reopened bonds due 2038 were up 0.75 point to 96.25 bid, 96.5 offered.

In the Philippines, credits saw selling as the federal government skipped Tuesday's scheduled Treasury auction, citing its strong fiscal position for May, according to the Manila Times.

Up to PHP 7 billion in bonds were expected to be sold, but banks expected a rate over 8.5% while the government did not plan to offer more than 8.25%, said deputy treasurer Eduardo Mendiola in the report.

"I don't think it is wise for us to borrow at an expensive rate. Expenditures have not been as much as we have expected. We're not on track on spending side and I think we're getting some windfall from revenue side," he said.

A budget deficit of PHP 40 billion to PHP 75 billion is still expected for 2008.

The Philippine bonds due 2030 lost 0.625 point to 127.125 bid.

Also in Asia, Pakistan's bonds due 2017 were quoted at 76 bid.

"It didn't feel like a busy day," the trader said, "if Indo didn't come with this deal we would've been dead."

Russia adds to pipeline

On the heels of Indonesia's colossal deal, more new issues fell in line right behind, but all were from the corporate side on Wednesday.

Russia's OJSC Sberbank (A2//BBB+) released talk of Libor plus 200 bps to 210 bps for its benchmark-sized dollar-denominated offering.

Barclays and JPMorgan will act as bookrunners for the deal.

The bonds will be issued from the bank's medium-term note program.

Sberbank is a Moscow-based commercial bank.

A market source was not surprised to see the talk set at Libor plus 200 bps to 210 bps, which amounts to 75 bps over the issue's five-year CDS.

What was more surprising, the source said, was the deal from VTB Bank (A2/BBB+/BBB+).

VTB released talk of 300 bps for its €750 million three-year bonds, according to a market source.

BNP Paribas and Deutsche Bank will act as bookrunners for the deal.

The government holds a majority stake in VTB, which is a Moscow-based retail and commercial bank.

Even though the talk of 100 bps over the five-year CDS looked good, the euro-denominated bonds have been difficult to price since the financial sector began to tumble, the source said.

Also from Russia, Transcreditbank (Ba1/BB) priced its $350 million three-year loan participation senior notes at 9%.

The deal was talked between 9% and 9¼%.

Dresdner Kleinwort and JPMorgan acted as bookrunners for the deal.

Transcredit is a Moscow-based retail and commercial bank.

Russia's Alfa Banking Group (Ba1/BB/BB) talked its dollar-denominated five-year bonds between 9% and 9¼%.

Credit Suisse and HSBC will act as bookrunners for the deal.

The bonds are putable after three years.

Alfa is a Moscow-based retail and commercial bank.

More corporates on the move

In the other sectors, Brazil's Lupatech SA (Ba3/BB-) issued talk in the 10% area for the reopening of its 9 7/8% perpetual notes.

Citigroup and Merrill Lynch will act as bookrunners for the deal.

The bonds from the original $200 million issue are callable beginning in 2012.

Lupatech is a Caxias do Sul, Brazil-based industrial materials manufacturer.

Luxembourg's European Investment Bank (Aaa/AAA/AAA) priced 250 million real five-year notes at 99.25 with an 11¼% coupon to yield 11.427%.

JPMorgan and BancaProfilo were asked to act as bookrunners for the deal.

The bonds will be paid in dollars.

The EIB is a Luxembourg-based economic development bank.

South Korea's Shinsegae Co. Ltd. (A3/A-) announced plans to offer a dollar-denominated three-year bond at mid-swaps plus 220 bps.

Shinsegae is a Seoul-based retailer.

Emerging Europe slips

Spreads pushed wider in emerging Europe by an average of 2 bps to 3 bps, a market source said, giving up earlier gains.

The Russian banks poured on more supply as many of their issues tracked Treasuries wider.

In Russia, the central bank is beginning to come to grips with the reality that consumer price growth will surpass the 10.5% forecasted for 2008, a market source said, noting that central bank deputy chairman Gennady Melikyan said the CPI may match 2007's 12%.

The central bank will most likely have to allow the ruble to appreciate in order to fend off price growth in the near term, the source said.

The ruble was seen trading at 23.624 to the dollar.

The Russian government bonds due 2030 added 0.1 point to 113.25 bid, 113.6 offered.

In Turkey, the ruling AK Party defended itself with a document submitted to the constitutional court, which described the AKP as a bulwark of secularism.

The party, which includes prime minister Recep Tayyip Erdogan, is under threat of being disbanded after chief public prosecutor Abdurrahman Yalcinkaya filed a motion to have the party disbanded.

Still, the AKP claims it "has not only respected the institutional and practical conditions of secularism within a legal framework, but also significantly contributed to the adoption of the state's secularist character by wide masses," the filing to the court said, according to the Turkish Daily News.

"For this reason, the AKP is not a focal point against secularism, but a movement to merge secularism with society," the document continued.

The AKP defense also turned the spotlight away from itself and onto its accusers.

"Democracy is severely threatened in countries where the authority of political opposition is directly or indirectly taken over by the judiciary and it takes decisions that were indeed to be taken politically," the document said.

The Turkish sovereigns due 2030 slipped 0.5 point to 146.25 bid, 146.6 offered.

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