Emerging markets better despite headlines; Czech Republic sells €1.5 billion; Mexico holds in

By Aaron Hochman-Zimmerman

New York, April 29 - Emerging markets improved with equities despite an outpouring of negative headlines.

Swine flu worries continued to rage around the world as governments pushed travel restrictions and medical advice.

In the financial sector, Wall Street woke up to hear that the U.S. economy shrank by 6.1% in the first quarter.

Still, by the end of the session both stories were forced to compete for attention with news from the Federal Reserve meeting and the demotion of Ken Lewis, former chairman, but still president and chief executive officer of Bank of America Corp.

"The most important thing driving the market is earnings," a syndicate official said.

The market has survived because "everyone expected everything to be so bad," he said, but "there could be more bad news."

However, the question remains: "Have we turned a corner?" he asked.

"Yes we have, according to a lot of people," he said.

As the headlines raged, Mexico was able to perform similarly to the rest of the category.

Mexico's bonds due 2014 added 0.9 point.

Meanwhile on the primary side, the Czech Republic was able to price a €1.5 billion bond issue and Abu Dhabi's Mubadala Development Co. PJSC priced $1.75 billion of bonds.

Equities' strong showing allowed volatility to drop by 1.87 to close at 36.08, according to the VIX index. The index is an often used yardstick of market volatility.

As a sector, emerging markets tightened by 8 basis points to a spread of 546 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.

Emerging Europe quiet, stronger

In emerging Europe, "it's really very quiet," a trader said.

Tuesday was "deathly quiet and lower," while Wednesday seemed "deathly quiet and a bit better," he said.

The Czech Republic led by pricing €1.5 billion 51/2-year bonds with a coupon of 4½% at mid-swaps plus 190 bps (A1/A/A+), according to a Finance Ministry release.

Barclays Capital, Ceska Sporitelna and Deutsche Bank acted as bookrunners for the deal.

Proceeds will be used for the refinancing of redemptions and to support the current budget.

The bonds come from a €10 billion program.

The pricing came at 230.7 bps over the equivalent German Bund, which "compares favorably with Czech Republic's peers and positions the country as the premier borrower from the region," the Finance Ministry release continued.

The €1.5 billion drew €2 billion worth of orders with most of the interest from Germany and the United Kingdom.

"It substantially contributes to the funding of the Czech Republic's borrowing needs, which have increased as a result of the global recession," said Eduard Janota, deputy minister of finance.

Meanwhile just to the southeast, there were rumors that Slovakia may follow with a euro-denominated deal of its own, sources said.

In Russia, a new arrangement for the export of gas to Ukraine was struck between prime ministers Vladimir Putin and Yulia Timoshenko.

"We now pay only for the gas we take, and we take as much gas as we need," Timoshenko told reporters, according to the Itar-Tass News Agency.

"In other words, we have encountered understanding on those items of the contract which say that we are expected to take the contracted amount of gas, but today we take as much as the crisis allows for, and pay in full," she said.

Putin was also encouraged by the warmer relations between the two neighbors.

"In the last quarter of last year and early this year bilateral trade kept growing to have approached a level of $40 billion despite the economic crisis," he said.

The Russian government bonds due 2030 added 1 point to 96 5/8 bid.

In Turkey, the central bank will use a moderate pace to raise interest rates even as inflation diminishes at an increasing speed, the bank said in a statement.

Investors have been clinging to confidence over an impending deal with the International Monetary Fund.

The lira was seen trading at 1.592 to the dollar.

Mubadala prices $1.75 billion

Abu Dhabi's Mubadala Development priced $1.75 billion in senior unsecured five- and 10-year bonds, (Aa2/AA/AA).

The $1.25 billion five-year bonds priced at 99.019 with a coupon of 5¾% to yield 5.98% and a spread of Treasuries plus 395 bps.

The $500 million 10-year bonds priced at 99.278 with a coupon of 7 5/8% to yield 7.73% and a spread of Treasuries plus 462.5 bps.

Citigroup, Goldman Sachs and RBS Securities Inc. acted as bookrunners for the deal.

The bonds will come from a global medium-term note program Mubadala announced on April 20.

Proceeds will be used for general corporate purposes.

Mubadala Development is an Abu Dhabi-based holding company.

Mexico up, concerns remain

Latin American trading followed equities up rather than succumb to negative headlines, including a still spreading swine flu.

If it seemed as though everyone within the world of the market had forgotten the realities of the swine flu, "I don't know if that's the case," a syndicate official said.

Price levels largely held and the crisis will not likely cause a run on the currency, but in Mexico "nobody's travelling," he said. Even some of the banks have encouraged employees to stay inside.

For local deals, "roadshows are getting cancelled," he said.

"Mexico is up with everything else, no better, no worse," he said, although volumes were to low to break out a definitive pattern.

The 5 7/8% Mexican sovereigns due 2014 were seen up 0.9 point at 104½ bid, 105 offered, while the 8 1/8% bonds due 2019 were improved by 0.2 point at 99½ bid, 100½ offered.

LatAm improves with equities

Elsewhere in the category, levels were dragged higher by equities, which seemed determined to press higher despite poor GDP figures from the United States.

In Venezuela, 9¼% bonds due 2027 added 0.8 point to 63.8 bid, 64½% offered.

The Brazil 11% sovereign bonds due 2040 tacked on 0.45 point to 127¾ bid, 127.85 offered.

Also in the category, Bermuda set price talk for its $200 million private placement of notes.

Tranches of five-year, seven-year and 10-year notes were talked in the Treasuries plus 400 bps area.

The deal is expected to price before the end of the week via JPMorgan.

Bermuda is viewed as an NAIC-1 issuer by the National Association of Insurance Commissioners.

Asia stands firm

Asia tightened and held its strength despite a lashing from the headlines.

In the Philippines, the government bonds due 2019 were seen at 109¾ bid, 111 3/8 offered.

Also in Asia, Pakistan's military threw Taliban fighters from their positions in a strategic town in the Buner region near the capital, Islamabad.

On Wednesday, airborne troops were able to link-up with and relieve police and irregular forces, which had initially been deployed to combat the Taliban.

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