Emerging markets weaken slightly; prices sturdy through external waffling; OCBC prices 1 billion ringgit

By Aaron Hochman-Zimmerman

New York, March 20 - Emerging markets remained largely detached from equities for the second straight day as the liquidity pool dried and cracked just ahead of Easter weekend.

Unfortunately for bond investors, credits were detached from a rally on Thursday, rather than the kind of retreat market watchers saw on Wednesday.

Still, optimism at least for the short-term was rising.

"We may be safe for a while," a trader said, although "we're going to keep getting negative headlines."

The headlines and volatility will ensure that "we are going lower" over the next few months, he said.

Although, over the next few days to a week "we could grind in for a while," he said.

After four straight weeks of inflows into emerging market bonds funds, the funds lost $34 million during the week ended Wednesday, according to EPFR Global.

EM local currency bond funds have "taken in $1.8 billion of inflows year to date while the EM hard currency funds have had $2 billion of outflows," EPFR said.

"The funds that are a blend of the two, having a local currency bond weighting above 25% but less than 75%, have had inflows of $779 million ... Seems people are borrowing globally - dollars, yen - and investing locally," EPFR said.

In trading on Thursday, the holiday volumes left little room for stand-out performers, but it was Brazil's sovereigns due 2040 that led the way down by shedding 0.75 point.

Meanwhile in the primary, Singapore's Oversea-Chinese Banking Corp. Ltd. (OCBC) priced a downsized 1 billion ringgit 10-year bond.

With the success in equities, volatility steadily retreated to end the day lower by 3.22 at 26.62, according to the VIX index. The index is a commonly used yardstick of market volatility.

LatAm softer to end short week

A silent Holy Week day finished off the abbreviated week in Latin American trading with slightly weaker prices.

"It's hard to tell; it's just so volatile," a syndicate desk official said about the prospects for a continuation of the upswing in the coming days.

"Things keep popping up," he said in reference to a seemingly constant supply of negative headlines.

"Really the market is just reacting based on headline sort of news and economic data," he added.

Venezuela's 9¼% government bonds due 2027 slipped 0.35 point to 96 bid.

Colombia's sovereigns due 2017 were quoted at 110 bid, 110.75 offered.

Brazil's highly traded 11% bonds due 2040 lost 0.75 point to 133.6 bid.

Holy Week strikes in Argentina

Meanwhile strikes by bank workers hit Argentina Wednesday from 10 a.m. to 3 p.m. local time at Banco Nacion, Itau, Ciudad de Buenos Aires, Credicoop, HSBC, Bisel, Formosa, Chaco, Santa Fe, Banco do Brasil and Standard Bank, according to the Buenos Aires Herald.

The workers engaged in sit-down strikes and marches through the streets of Buenos Aires in order to win wage increases.

Meanwhile in the countryside, striking farmers blocked major highways with grains and burning farm equipment, the report said.

Still, cabinet chief Alberto Fernandez announced that the government is not planning to cut export taxes, despite the wishes of the farmers, a market source said.

Also, according to the statistics agency Poliarquia, president Cristina Kirchner's popularity rating dropped again in March, the source added.

The 8.28% Argentine discount bonds due 2033 held unchanged at 86.5 bid.

Quiet Asia looking up

In Asia it was "a dead day," a trader said; however, "slowly, but surely we're coming back to life."

"People are feeling a little more comfortable with the markets," he said.

"The fact that credit didn't blow out" during the equity tumbles of the week made the trader feel "more comfortable with the way things are going from here," he said.

Perhaps "we have seen the wides," he said.

In the Philippines, the Development Bank of Singapore (DBS) said inflation may surpass the central bank's target rate, the Manila Times reported.

DBS raised its forecast inflation rate to 5% from 3.5% after inflation hit a 16-month high in February as commodities continued to rally, the report said.

The peso was seen trading at 64.249 to the dollar.

The Philippine government bonds due 2030 slipped just 0.125 point to 129.75 bid.

Indonesia's government bonds were better by 0.25 point at 105.25 bid.

Elsewhere in Pakistan, the ever-present violence hit a South Waziristan army post killing five soldiers and wounding nine others, the BBC reported.

The Pakistani sovereigns were quoted at 86 bid.

OCBC prices 1 billion ringgit

The primary market ended the week on a high note as the Oversea-Chinese Banking Corp. priced a 1 billion ringgit 10-year lower tier II subordinated bond with a coupon of 4.6%.

OCBC Malaysia and RHB Investment Bank were asked to act as bookrunners.

If not redeemed, the bonds step up to 5.6% on March 27, 2013.

The original offer amount of 1.5 billion ringgit, announced on Feb. 26, was reduced due to market volatility.

OCBC is a Singapore-based retail and commercial bank.

Emerging Europe closes week quiet, flat

The desks were quiet in emerging Europe, according to a portfolio manager, as the holiday volumes left prices at the starting gate.

In Russia, finance minister Alexei Kudrin told reporters that the central bank carries the greatest burden in the fight against inflation, according to a market source.

He said inflation is "90% the bank's responsibility."

The last time Kudrin made similar remarks on Jan. 27, a rate cut of 25 basis points shortly followed, the source said.

Kudrin also projected a 7% GDP growth rate in 2008, while the budget is calculated based on a 6.7% rate, the source added.

Also in Russia, the nuclear energy firm OJSC Atomenergoprom and Japan's Toshiba Corp. signed an agreement to outline future nuclear cooperation, according to the Itar-Tass News Agency.

The Russian government bonds due 2030 were up 0.125 point to 115.25 bid.

Meanwhile in Ukraine, the government gave its approval to an agreement between the national oil firm Naftogaz Ukrainy and Russia's OAO Gazprom.

Deputy prime minister Ivan Vasyunik told Itar-Tass that the government removed the phrase "no less than" in reference to the arrangement for the delivery of 7.5 billion cubic meters of gas to industrial consumers in Ukraine.

The current form of the deal has not yet been considered by Gazprom.

In Turkey, the lack of a "direct transition medium" between the lira and the euro will negatively impact the lira if the dollar is used as the changeover currency, according to a report in the Turkish Daily News.

The report also noted that the recent deterioration of the lira and the stock market is more damaging to the overall economic picture than the suit brought against the ruling AK party for unconstitutional and anti-secular activities.

The lira was seen trading at 1.246 to the dollar.

The Turkish government bonds due 2030 fell just 0.125 point to 150.375 bid.

Elsewhere in South Africa, the national power provider Eskom announced that it will ask for a 60% rate hike in April, even though a 14.2% hike was already approved, according to a market source.

Federal regulators will then have three months to consider Eskom's request.

© 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.