Emerging markets stages late-day recovery, prices finish flat; Hyundai offers ¥47 billion in two tranches

By Aaron Hochman-Zimmerman

New York, Jan. 28 - Emerging markets held its collective breath at the open, but was respiring more easily later in the day as spreads tightened to almost unchanged levels.

Trading was light to open a week that is expected to bring a rate reduction from the Federal Open Market Committee on Wednesday as well as durable goods and non-farm payroll data releases on Tuesday and Friday respectively.

"You have the Fed and certainly unemployment numbers are key for this week," an emerging markets strategist said.

"The market has already discounted 50 basis points," he said, but noted that some are expecting 25 bps and others up to 75 bps.

The flat trading offered no big winners or losers. In the primary, South Korea's Hyundai Capital Services Inc. offered up a total of ¥47 billion over two tranches, each with a two-year maturity.

Overall, the market closed with a better tone.

"There was very little follow through at the start," a trader said about any carry over from the rough overnight session in Asia.

"The market does feel a little bit better.

"There's a lot happening," he added, attributing the light volumes to the upcoming Fed meeting and data releases.

Still, more headline dark clouds were forming over Fortis which may be ready to report a €1 billion subprime-related loss.

Credit Suisse is also expected to pare down its payroll by 500 jobs.

The layoffs will be "primarily" from divisions focused on the selling and trading of bonds, the BBC reported.

Volatility saw the high side of 30.00 near the open, but trailed off into the afternoon to close lower by 1.30 at 27.78, according to the VIX index. The index is a common yardstick of market volatility.

As a sector, emerging markets was unchanged on the day at a spread of 276 bps, according to JP Morgan's EMBI+ index. The EMBI+ determines the amount of extra yield investors will demand to keep money in emerging markets debt.

Asia tightens after overseas nightmares

Asian credits generally steered clear of an overnight equity beating in the foreign markets, according to a trader.

"It tightened fairly nicely as the day progressed," he said, although "volumes were fairly light."

Trading of sovereign cash picked up, he said, but mostly hedging instruments were traded as investors were waiting for economic data and for word from the Fed.

High yield index spreads were 7 bps to 8 bps inside the wides of the day, he said.

Investment grade was as wide as 120 bps, bid overnight, but was later trading closer to 112 bps bid during Monday's session, he said.

In the Philippines, the total amount proposed for infrastructure investment between 2007 and 2011 is PHP 2.03 trillion, according to the National Economic and Development Authority website.

By sector, transportation investment will draw the greatest amount of attention and about PHP 753 billion or 37% of the total over 521 projects.

Investment in power will total PHP 527 billion or 26% over 206 projects, followed by water treatment at PHP 425 billion or 21%.

The national government will finance over half of the public projects to the tune of PHP 1.09 trillion. Other funding will come from local governments and approximately 31% or PHP 642 billion will come from the private sector.

The Philippine bonds due 2030 were seen flat at 132.25 bid, 133.25 offered.

In Indonesia, after its management shake up, the Business Competition Supervisory Commission (KPPU) will continue its mission of attracting foreign investment to Indonesia, according to the Jakarta Post.

The Indonesian sovereign bonds due 2018 slipped 0.125 to 102.5 bid, 103 offered, while the bonds due 2038 were quoted at 105.125 bid, 105.625 offered.

Pakistan's president Pervez Musharraf asked the West to limit criticisms of his regime and to offer more assistance in his fight against militancy, according to a BBC report.

Musharraf met with prime minister Gordon Brown of the United Kingdom on Monday.

Brown told Musharraf that credible elections on Feb. 18 are "essential."

Elections were postponed in the wake of the assassination of opposition leader Benazir Bhutto. The Pakistani government bonds due 2030 were seen at 83 bid, 87 offered.

The bonds in the volatile country have seen a recent lift in prices.

"People are putting a bit of risk to work," the trader said.

Yen, local-currency deals enter pipeline

As market volatility persists issuers are looking to finance, but looking away from the dollar, a trader said.

"Issuers that need to come are looking at alternatives," he said. "They're looking to get away from the dollar.

"The [current] market is not anywhere near as deep as the dollar market is in normal times.

"For a couple [of the new issuers] it's fine, but eventually the U.S. market will have to open," he said, calling the local-currency market "a near-term fix."

Hyundai Capital Services Inc. (Baa2/BBB/) plans to issue a ¥42 billion two-year senior unsecured bond and a ¥5 billion two-year senior unsecured bond.

The finance company pulled a benchmark-sized dollar-denominated deal on Nov. 13, 2007.

Hyundai Capital is a Seoul-based firm which manages financial services for Hyundai Kia Automotive Group.

Israel's Cellcom Israel Ltd. announced it will raise between NIS 250 million and NIS 600 million in new debentures.

The offer will be made in Israel only and will come from existing series C and series D notes.

The company also announced the voluntary prepayment of $140 million in order to cancel its outstanding credit facility.

The Netanya-based telecommunications company is the largest cellular provider in Israel.

The Philippines' Rizal Commercial Banking Corp. was approved to issue PHP 7 billion of tier II notes.

The central bank of the Philippines approved the issuance last Thursday.

The offer period is expected to be between Feb. 4 and Feb. 15.

RCBC is a Manila-based retail and investment bank.

Emerging Europe comes back to end flat

After a frightening morning in Asia, prices in emerging Europe bounced back later into the day to finish close to unchanged.

"Everybody was very scared early in the morning," an emerging markets strategist said.

Equities were able to outshine debt on Monday, but the rally in the stock market left a better tone for everyone.

"I think it's a great performance by the equity markets," the strategist said on what turned out to be a quiet day for bonds.

"Flows were very light," he said.

Russia's markets will remain stable despite worldwide macroeconomic turmoil, said minister of economy and trade Ella Nabiullina in her report to president Vladimir Putin, according to the Itar-Tass News Agency.

All of the world's markets are lower, except the Russian market which is higher by 2.2%, Putin said on Sunday.

Also in Russia, the central election committee will prohibit former prime minister Mikhail Kasyanov from opposing Putin's chosen successor, Dmitry Medvedev, in the presidential elections in March.

The Russian sovereigns due 2030 posted a gain of 0.25 to trade at approximately 115.25 bid, 115.5 offered.

Shortly after the close of the deal which made the way for Serbia to sell its national oil company Naftna Industrija Srbije (NIS) to Russia's OAO Gazprom on Jan. 22, the Balkan country's bid to join the European Union is facing roadblocks.

The government of the Netherlands refused to sign a pre-membership agreement until accused Serbian war criminals such as general Radko Mladic are turned over to the International Court of Justice in The Hague.

In South Africa, some coal mines will begin operations after a weekend hiatus imposed by the lack of electrical power.

South Africa's government-run power provider Eskom is still experiencing shortages and many gold, diamond and platinum mines remain closed for safety reasons.

In Turkey, at a Greek-Turkish business forum many of the Greek investors in attendance showed interest in pursuing business opportunities in Turkey, the Turkish Daily News reported.

The trade volume between the two countries stands near $3 billion.

About $5.5 billion was invested in Turkey by Greek interests in 2007.

The Turkish government bonds due 2030 also registered at gain of 0.25 to trade at 156.25 bid, 156.325 offered.

LatAm trades flat ahead of Fed, data

"Spreads are unchanged," a trader said about the lightly traded Latin American credits on Monday.

"Credits underperformed equities," he said as the Dow Jones Industrial Average gained 176.72 or 1.46% to end at 12,383.89.

"It's a nothing day ... one of the quietest days since New Year's," he said, adding that investors were hesitant to over-commit before the Fed meeting.

Venezuela's president Hugo Chavez has asked Nicaragua, Bolivia, Cuba and Dominica to join an anti-United States military alliance.

Venezuela's 9.25% sovereign bonds due 2027 were quoted unchanged at 101 bid, 101.5 offered.

Argentina's 8.28% discount bonds due 2033 slid by 0.5 to 92.5 bid, 93 offered.

In Brazil, the mining firm Companhia Vale do Rio Doce (CVRD) will attempt to find investors this week in London and Asia to support the approximate $80 billion purchase of Switzerland's mining group Xstrata.

"It's a ridiculous number, in this environment, to pay for anything," the trader said.

According to an optimistic timeline, the deal is expected to complete in early February, he said.

CVRD's notes due 2036 traded at a spread of 314 bps bid, 309 bps offered.

The 11% Brazilian government bonds due 2040 were unchanged at 134.1 bid, 134.2 offered.

The 7.125% bonds due 2037 were lower by 0.55 at approximately 109 bid, 109.25 offered.

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