Emerging markets quiet; prices end mixed to stronger after equity spike; Rizal prices PHP 7 billion

By Aaron Hochman-Zimmerman

New York, Feb. 22 - Prices in emerging markets finished mixed to higher as equities jumped late in the day on news of a bailout for monoline bond insurer Ambac Financial Group Inc.

The lift sent investors home for the weekend on a positive note, but "it's a small positive," a buyside source said.

"I wouldn't read too much into it," the buysider said.

Stocks made a near 200-point turnaround as the Dow Jones Industrial Average ended 96.72 points, or 0.79%, better at 12,381.02.

Over the day, volumes were low as a day with no figures ended a choppy week, a trader said.

Trading produced a stand out performer in Brazil, which saw its sovereigns due 2037 add on 1.1.

In the primary, local issuer Philippines' Rizal Commercial Banking Corp. priced PHP 7 billion to yield 7%.

After coming off of a losing week, emerging markets posted inflows of $315 million during the week ended Wednesday, according to data compiled by EPFR Global.

Volatility was steadily higher throughout most of the day but was knocked down by the news of the monoline bailout plan. The VIX index lost 1.06 to close at 24.06. The index is a commonly used yardstick of market volatility.

Treasuries rolled back on the equity spike, which left emerging markets tighter by 7 basis points at a spread of 270 bps. The EMBI+ estimates the amount of extra yield investors will require to hold money in emerging markets debt.

Emerging Europe ends week flat

After a "choppy week" volumes were light as the market offered up "no-data Friday," a trader said.

"It opened quiet and it's been reasonably steady all day," said a London-based trader.

Ukraine and Russia intend to form a free trade zone based on the regulations of the World Trade Organization.

"We can do that, and this can be made one of our priorities. We should painstakingly work on the free trade zone between Ukraine and Russia that would begin working without wavers and restrictions. This is our goal, to which we must dedicate a certain part of our work," Ukraine prime minister Yulia Timoshenko told the Itar-Tass News Agency.

Meanwhile, Russia's Economic Development and Trade Ministry posted a 7.4% rise in GDP for January, according to the Itar-Tass News Agency.

Russia also advised NATO that it may become necessary for it to deploy troops to Serbia if violence persists over the independence of Kosovo.

On Thursday, a Serbian protest of Kosovar independence resulted in the burning of the U.S. embassy in Belgrade.

Friday, non-essential embassy personnel were recalled by the United States.

The Russian sovereigns due 2030 added 0.25 to trade at 113.375 bid, 113.5 offered.

Turkey's ground forces entered into Iraq in pursuit of rebels of the Kurdistan Workers' Party (PKK).

Both Iraqi officials and Turkey prime minister Tayyip Erdogan claim the action is only as small-scale incursion.

However, early reports indicated five Turkish soldiers and "dozens" of PKK fighters were killed, according to the BBC.

The Turkish bonds due 2030 slipped 0.125 to 152.5 bid, 152.625 offered.

Representatives of South Africa's state power company Eskom are expected to meet with the National Energy Regulator (Nersa) within two weeks to discuss the regulatory agency's decision to raise prices only 14.2% during 2008 and 2009, reported the Times of South Africa.

Eskom's petition to raise tariffs by 18.7% last December was rejected by Nersa.

The South African government bonds due 2017 were quoted at 117 bid, 118 offered.

LatAm jumps late-day

A slow morning in trading was followed by "a pretty nice rally in LatAm," a buyside source said. "We're tighter by 7 [bps]."

The sector's comeback was rooted in the equity about face brought on by the news of a possible plan to bail out monoline insurer Ambac Financial Group.

Argentina's bonds have shown more stability in recent weeks than previously, a market source said.

The Argentine 8.28% discount bonds due 2033 fell 0.4 to 87.7 bid, 88.7 offered.

Brazil's 7 1/8% bonds due 2037 led the day with gains of 1.1 to trade at 107.6 bid, 107.85 offered. The 11% bonds due 2040 gained 0.4 to trade at 133 bid, 133.125 offered.

Elsewhere, Venezuela's 9¼% sovereigns due 2027 were better by 0.5 to trade at 98.9 bid, 99.25 offered.

Asia quietly follows stocks

Asian trading spent a slow day "pretty much just following stocks," a trader said.

Although, "we haven't had a chance to react to the monolines," he said, hoping the news will give the market cause to "open tighter on Monday."

The Philippines sovereign bonds due 2030 were lower by 0.25 at 129.75 bid, 130.25 offered.

The local markets are closed on Monday for a public holiday.

Indonesia's sovereign bonds were quoted flat at 103.75 bid, 104.25 offered.

In Pakistan, bond prices fell even as the victorious democratically elected opposition parties are set to meet to form a coalition.

The Pakistani sovereigns due 2017 sank 3.25 to 83.5 bid, 86.5 offered.

"It's a bit hard to say what's driving the whole gig with Pakistan," a trader said.

"The market is more worried about uncertainty," he said.

Rizal prices PHP 7 billion

The primary market was able to produce a local deal on a quiet Friday.

Still, some are cautious to be too encouraged by the ability of some issuers to price in the local markets.

"The dollar market is still pretty much a nonstarter," a trader said, indicating that some issuers would prefer dollar issues if market conditions allowed.

Rizal Commercial Banking Corp. (//B+) priced a PHP 7 billion unsecured subordinated lower tier II note at par to with a coupon of 7%.

HSBC and ING acted as the bookrunners for the deal.

The notes are callable in July 2008.

Rizal is a Manila-based retail and investment bank.

The primary also provided investors with its usual portion of rumors, this time from Russian corporates VTB, Sberbank and Gazprom.

"The usual stories go 'round and 'round," a trader said.

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