EM up on strong market day; Gabon prices $1 billion debut; Argentina leads trading

By Aaron Hochman-Zimmerman

New York, Dec. 5 - Emerging markets felt stronger on Wednesday as encouraging headlines came from the United States and a $1 billion bond was priced by the Republic of Gabon.

With that deal, the primary saw the first benchmark bond move through the pipeline since the 6.75% 10-year bond was priced by the Ukraine on Nov. 7.

The success of the Gabon deal may be enough to encourage others to try to complete offerings before the end of the year, a syndicate official said.

Trading also had a "strong day," the official said as strong headlines came in from the U.S. Department of Labor.

The Bureau of Labor Statistics reported that third quarter productivity in the United States totaled 6.7% from the business sector and 6.3% in the non-farm business sector.

Both numbers were higher than the department had projected on Nov. 7 and represent the largest gains in productivity since the third quarter of 2003, the report said.

"It seems to be supported by the data," the official said about the strength of the market.

The climb on the equity side also helped to push emerging markets.

"Tech stocks performed very well," he said.

Meanwhile, news which leaked out of Washington, D.C., suggested that the Bush Administration and a group representing subprime lenders have worked out a deal to freeze the interest rates on some subprime mortgages for five years.

The agreement was a compromise between the one to two years the lenders had hoped for and the seven years the administration had hoped for, the New York Times reported.

Also, after a meeting of the Oil Producing and Exporting Countries, the cartel decided not to raise production as many had expected.

OPEC will re-examine the decision during its Feb. 1 meeting, but felt that because of the recent downturn in oil prices there was no danger of the prices breaking $100 per barrel.

Light sweet crude was seen trading close to $87 per barrel.

As equities posted a moderately healthy day, volatility dropped off 1.26 to close at 22.53, according to the VIX index. The index is the accepted gauge of market volatility.

Emerging markets as a sector narrowed past the 250 basis points mark. JP Morgan's EMBI+ index tightened 11 bps to a spread of 246 bps. The EMBI+ determines the amount of extra yield investors are willing to accept to keep money in emerging markets.

Gabon prices $1 billion

The primary market jumped back to its feet Wednesday with the pricing of a $1 billion debut sovereign from the Gabon.

The first-time issuer priced its 10-year bond (BB-/BB-) at par with a coupon of 8.2% and a spread of Treasuries plus 426 basis points.

The sovereigns had been talked in the 8¼% area.

Citigroup and JP Morgan had the books for the deal which will provide proceeds to repay Paris Club debt.

"I think you might see some," a syndicate official said about issuers who could be encouraged by Gabon's success.

It would be "the larger sovereigns and corporates" which stand the best chance to bring deals before the end of the year, he said.

Although, anyone who tried after next week is "very brave," he said.

Sovereigns lead gains in Asia

The session was sturdy, but only a few issues were heavily traded in Asia, a trader said.

The sovereign credits saw most of the action, but performed "quite strongly," he said.

"Outside of that not a great deal" of volume, he said.

The Philippines national statistics office reported inflation during November was up to 3.2% from 2.7% in October.

Commodity prices were blamed for the increase, but consumption is still healthy.

The country's benchmark bonds due 2030 were up 1.125 to trade at 134.375 bid, 134.875 offered.

The peso was seen trading at 41.83 to the dollar.

"The move upwards has brought some buyers in, kind of chasing performance," a trader said.

Some other Asian bonds took their cue from the Philippines.

Indonesia's bonds were higher "on the back of the upward move," he said.

The government announced it hopes to privatize 28 entities to help balance the national budget.

"That might provide some support too," the trader said about the move to privatize.

The Rp. 1.5 trillion plan still must be approved by the House of Representatives in Jakarta.

The Indonesian government bonds due 2017 were quoted higher by 0.125 at 103.75 bid, 104.5 offered.

Pakistan's government bonds avoided headline calamity and were quoted up 1.25 at 89 bid, 92 offered.

Investors also saw some "buying in Sri Lanka," the trader said.

Europe strong on better headlines

"[Emerging] Europe seems to be trading quite well," a syndicate official said.

On a day which not only avoided negative headlines, but actually produced positive ones, trading inched forward.

Still, the sector's biggest success was the pricing of Gabon's $1 billion debut sovereign.

In Russia, a deal was struck to supply the Ukraine with oil at the price of 179.5 dollars per 1,000 cubic meters in 2008, reported the Itar-Tass News Agency.

Also, OAO Gazprom announced losses of approximately 20% during the second quarter of 2007 due to higher costs and a drop off in consumption during a warm year in Europe.

Profit fell to 113 billion rubles compared with the same period in 2006.

The Russian benchmark sovereign due 2030 held flat at a bid of 114.

In Turkey, the ruling Justice and Development Party (AKP) submitted its 2008 budget proposal to the parliament, but opposition parties criticized the government for ignoring the poorer classes, according to a Turkish Daily News report.

No details of the budget were published.

Turkey's government bonds due 2030 were up 0.5 to a bid of 158.

Brighter LatAm up with equities

Credits followed equities to a positive day in Latin American trading.

Equities were looking up as news came from the United States about a possible mortgage deal as well as high productivity numbers from the Department of Labor.

Venezuela's president Hugo Chavez admitted on state television that his power-consolidating referendum may have been ill-timed.

After a spike at the beginning of the week, the country's bonds seem to have settled back into a stable pattern. In trading Wednesday the 9.25% sovereign due 2027 was unchanged at a bid of 99.75.

Argentina's government bonds led the high-beta issues in gains as it added 1.25 to its 8.28% discount bonds due 2033.

The issue was quoted at a bid of 96.75.

Brazil's government bonds due 2037 were spotted at a bid of 114.25.

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