EM trading finds a slow stride; high-betas recover ground; Gabon's benchmark debut begins roadshow

By Aaron Hochman-Zimmerman

New York, Nov. 27 - Emerging markets pulled itself back to its feet on Tuesday after a rocky beginning to the week on Monday.

The light trading volumes persisted in an illiquid environment, but investor sentiment began to improve across the market sectors.

"It feels better," a trader said, although he added: "Not much is actually changing."

An analyst credited part of the improved feelings to the news of Citigroup's $7.5 billion equity infusion from the Abu Dhabi Investment Authority.

The purchase of 4.9% of Citigroup makes the authority the largest owner of stock in the embattled bank.

In trading, the high-betas showed a rebound led by Colombia's sovereign due 2037 which tacked on 0.50 even as relations strained farther with its neighbor Venezuela.

Elsewhere in the benchmark credits, the Philippines saw its government bonds due 2030 increase 0.875.

"We're just watching equities and following equities," a syndicate official said.

New issues were far from the minds of most market watchers, but the Republic of Gabon will begin to roadshow a benchmark-sized debut dollar bond via Citigroup and JP Morgan.

Most prospective issuers "were hoping they would see a little bit of a window, but I'm not sure they're going to get one," a trader said, joking that if the window does not open issuers may have to jump through.

Still, volatility reflected the composure which was creeping back into the market on Tuesday. The VIX index shed 2.63 to close at 26.28. The index is the accepted yardstick of market volatility.

As Treasury spreads were widening, emerging markets as a sector saw its spread ratchet down 12 basis points to a spread of 265 bps, according to JP Morgan's EMBI+ index. The index measures the amount of extra yield investors demand to hold money in emerging markets debt.

More lift to tone than prices in emerging Europe

Trading in emerging Europe was "a little better" than Monday's session, a trader said.

It is time to start bottom fishing for banks, he said as the Treasury rally widened out spreads.

In Russia, the energy ministry announced plans to pump 5 million tons of oil per year into China through pipelines Kazakhstan, according to a report by the Itar-Tass News Agency.

Trade volume between China and Russia is $11.7 billion or 31% above last year's levels.

Also, Russia's Rosneft and the Chinese National Oil and Gas Corp. have recently signed an agreement to jointly build an oil refinery with a 10 million tons a year capacity in Tianjin, China.

The Russian sovereign bonds due 2030 were spotted up 0.5 to trade at approximately 113 bid, 113.05 offered.

Turkey's government bonds due 2030 were seen unchanged and trading at 156 bid, 156.25 offered.

High-, low-betas gain in LatAm

The mood improved across all of the emerging market sectors including the volatile Latin American high-beta credits, which have suffered during the current flight to quality, an analyst said.

Argentina recovered from a difficult Monday as its 8.28% discount bonds due 2033 gained 0.35 and traded at 91.2 bid, 91.65 offered.

Venezuela's president Hugo Chavez recalled his country's ambassador to Colombia and said the relationship between the two countries will be under further consideration by his government.

Difficulties between Chavez and Colombian president Alvaro Uribe arose after the Bogota government removed Chavez from hostage negotiations with the Revolutionary Armed Forces of Colombia (FARC).

Colombia's ambassador still remains in Caracas.

Venezuela's 9.25% sovereigns due 2027 were quoted unchanged at 97 bid, 97.75 offered.

Colombia's 7.375% government bonds due 2037 climbed 0.5 to trade at 109.5 bid, 110 offered.

In Brazil, the real dropped to a seven-week low against the dollar as the trade surplus continued to narrow, a market source said.

As imports increased, the surplus fell to $139 million from $693 million, the source said.

The real was seen trading at 1.838 to the dollar.

Brazil's 11% bonds due 2040 added 0.25 to trade at 132.25 bid, 132.875 offered. The bonds due 2037 fell 0.35 to 110.95 bid, 110.5 offered.

'Constructive day' in Asia

"Overall the market tone is definitely better, but it is primarily limited to the actively traded stuff," a trader said about indexes, CDS and sovereign currencies.

Before any true tightening can take place the market needs "a couple days of sustained stability and strength," he said.

Overall, "it was a pretty constructive day," Monday, he said, adding: "a fair amount of hedges were taken off."

In the Philippines, the benchmark sovereigns due 2030 were spotted up 0.875 to trade at 131.5 bid, 132 offered.

Meanwhile, a United Nations inspector filed a report accusing Indonesia of allowing torture in its prisons and military detention facilities.

The UN's Manfred Nowak told the BBC he found evidence of prisoners with electrocutions and close range gunshot wounds to the legs. Nowak called on the government to take immediate action to stop the offenders who were often policemen.

The Indonesian government bonds due 2017 added 0.5 to trade at approximately 102.75 bid, 103.25 offered.

In Pakistan, president Pervez Musharraf toured army headquarters and greeted his troops ahead of his expected resignation from the army on Thursday when he will be sworn in as a civilian president.

The Pakistani bonds due 2017 were posted at 85 bid, 88 offered.

Corporates quiet, Gabon tests sovereign side

The primary was all but silent as the Republic of Gabon's debut dollar-denominated bond (/BB-/) will be set at a benchmark amount.

Citigroup and JP Morgan will bring the deal to market.

Proceeds will be used to repay Paris Club debt.

The roadshow will end on Dec. 4.

"The sovereign arena is a little bit different," a syndicate official said about the difficult conditions in the primary.

"They will still have to pay up to get a deal done," the official said.

"If it was me, if it's not done by the 17th [of December] it's going to be much more difficult," a trader said.

"Maybe once in sort of seven or eight years you can have a crazy Christmas," he added.

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