Emerging markets soften with equities; flows light; Uralsvyazinform tries ruble deal

By Aaron Hochman-Zimmerman

New York, March 7 - Emerging markets was dragged down by equities as the Department of Labor announced a loss of 63,000 nonfarm jobs in the United States during February.

After the disappointing data, the Federal Reserve jumped to offer good news to investors by increasing its term auction program to $100 billion.

"There was the talk of a Fed cut, which was laughed at," a trader said about the possibility of an emergency rate reduction by the Fed.

The Fed's actions left equities lower, but emerging market bond prices were mixed. Erratic Treasuries pulled spreads wider.

"Treasuries are just so volatile," a trader said.

If an investor is looking for something volatile to trade, "Treasuries is your answer," he said.

Meanwhile, the primary offered up 2 billion ruble worth of five-year notes from Russia's Uralsvyazinform.

Volatility made a steady climb throughout the morning but slipped in the afternoon to end lower by 0.06 at 27.49, according to the VIX index. The index is a standard measure of market volatility.

The volatile Treasuries gained on a weak equity market which left emerging markets, as a sector, wider by 8 basis points at a spread of 291 bps, according to JPMorgan's EMBI+ index. The EMBI+ determines the amount of extra yield investors are willing to accept to hold assets in emerging markets debt.

Asia finds all-time wides

Asia was trading lightly but tracking equities closely on Friday.

"As stocks really accelerated lower, it looked pretty messy," a trader said, although the market did see a "late-day bounce."

Trading was almost "limited to sovereign cash and single name CDS and indices," he said.

"It's very, very thin," but market watchers saw new CDS wides set for benchmark names, he said.

"Indonesia made a new all-time wide of 259 [bps] and has come back," he said.

The Indonesian bonds due 2018 were quoted at 104.5 bid, 105 offered.

"Philippines' 255 bid was an all-time wide," he said.

In the Philippines, domestic liquidity grew by 7.2% in January, down from 9% in December, according to the central bank's web site.

Also, credit extended to the private sector grew at the rate of 7.6% in January, up from the 7.2% growth posted in the previous month.

The Philippine sovereign bonds due 2030 were quoted at 129 bid, 129.25 offered.

Elsewhere, 11 of Pakistan's parliament ministers joined the coalition against president Pervez Musharraf, reported the BBC.

The opposition still lacks the required number of seats to impeach Musharraf.

The army's chief of staff, Gen. Ashfaq Kayani, appealed to both sides for cooperation but stated the army would remain apolitical, the report said.

The Pakistani government bonds due 2017 were spotted lower at 83 bid, 86 offered.

Also in Asia, Malaysia's prime minister, Abdullah Ahmad Badawi, expressed concerns that ethnic minorities would support opposition parties in Saturday's parliamentary elections.

Since the end of British colonial rule in 1957, the majority National Front has won every general election, the BBC reported.

The streak will likely continue in 2008, a BBC analyst said.

Emerging Europe ends week quietly

Emerging Europe ended the week with a light volume day as investors were willing to watch and wait for the data from the United States.

What began as a slow day, ended as a sort of "early close" after the data was released, a trader said.

"The pattern is fairly well established," he said about the market's bouts of good and bad days, "and obviously the problems are building."

Ukraine's gas crisis sparked new flames as prime minister Yulia Timoshenko took a harder line against gas shipping middlemen than president Viktor Yushchenko, according to the Itar-Tass News Agency.

Timoshenko said the system of intermediaries only serves to benefit the intermediaries themselves.

Yushchenko cautioned against demanding too much from Russia, which may lead to higher prices for fuel.

The Russian sovereigns due 2030 tacked on 0.25 point and were spotted at 114.75 bid, 114.875 offered.

In Turkey, foreign investors have helped push up property values by 15% to 20% in the past year, according to a report in the Turkish Daily News.

Some real estate experts consider the growth potential in Turkey similar to Spain's potential in the 1970s, the report said.

The Turkish government bonds due 2030 dropped 0.25 point to 150 bid, 150.25 offered.

The government of Serbia "is in crisis," according to the government's official web site.

Some in parliament contended that Serbia can only join the European Union as a "whole state, with Kosovo-Metohija."

"[Prime minister Vojislav] Kostunica said that in the next several days, the parliamentary parties must reach agreement on how to overcome the crisis," according to the web site.

LatAm bids holding, offers slipping

Latin American trading was light and equity driven, but more so on the offer side than bids, which have held in well, according to Enrique Alvarez, a Latin America debt strategist at think tank IDEAglobal.

"Equity has been all over the place and that normally feeds into debt prices," he said, but recently, "on a bid basis, you're not doing so poorly."

Argentina's statistics reporting agency, Indec, announced the consumer price index rose 0.5% in February, but many analysts believe the true number is closer to 1%, according to the Buenos Aires Herald.

Market watchers have traditionally been suspicious of Indec's accuracy.

"It's pretty incredible," Alvarez said about Indec's history of questionable practices.

The agency also reported a 1.1% rise in food costs and a 0.9% rise in housing and education costs.

The 8.28% Argentine discount bonds due 2033 lost 0.65 point to 87.35 bid, 88 offered.

"Those were slightly roughed up today," Alvarez said, as the bonds were lower by as much as 1.25 points during trading.

Also in Latin America, Brazil's 7 1/8% bonds due 2037 were unchanged on the bid side at 106.75, while the offer fell 0.65 point to 107.75.

The 11% Brazilian government bonds due 2040 were better by 0.2 point at 133.6 bid, 133.7 offered.

"The secondary has held up maybe too well, especially in Latin America, which is very expensive compared to the rest of the world ... Even compared to high-grade levels, let alone high yield," a market source said.

FARC conflict cools

The leaders of Venezuela, Colombia and Ecuador did little to add fire to the flames ignited by Colombia's raid on the FARC inside Ecuador on Saturday.

Diplomatic ties to Bogota have been cut by the governments in Quito and Caracas, as well as Managua, Nicaragua.

No further troop movements or military posturing was seen on Friday, although the leaders of the countries in the region will meet at a long-scheduled regional summit, which began Friday in the Dominican Republic.

The conflict is expected to be at least a distraction.

The 9¼% Venezuelan bonds due 2027 were spotted unchanged at 96.5 bid, 97.25 offered.

The 7 3/8% Colombian bonds due 2024 slipped 0.25 point to 113.5 bid, 114.25 offered.

The 8% Ecuadorian bonds due 2030 fell 0.7 point and was quoted at 95.3 bid, 96 offered.

Ruble deal tries primary

The primary offered up 2 billion ruble worth of five-year notes from Russia's Uralsvyazinform as well as rumors of a $125 million to $150 million five-year deal from China's Crown Worldwide Holdings Ltd.

OAO AKB Svyaz Bank will act as the bookrunner for Uralsvyazinform, which is an Ekaterinburg, Russia-based telecommunications provider.

Proceeds will be used to refinance existing debt.

"Nothing has gone on for a long time," a market source said.

"There are a lot of sovereign- and high-grade corporate names in Latin America that can stay far away from the market," the source said.

"In Eastern Europe and Asia issuers are more needy right now, and they're getting more realistic ... However, at the same time we have a market that seems to be getting more difficult, again," the source said.

"Obviously the way the market is pretty much seized up, a new issue would be very, very difficult," a trader said.

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