Emerging markets beat externals; prices hold in; Parque Arauco prices $170 million

By Aaron Hochman-Zimmerman

New York, March 19 - Emerging markets remained clear of external spillover as investors hid from diving equities in Treasuries and emerging markets.

"There's a big divorce going on," said Enrique Alvarez, a Latin America debt strategist at think tank IDEAglobal, as the day's flight to quality included a flight to emerging market credits.

Despite Tuesday's rally, "whatever happens, people understand that the problem in the market will not be fixed in a week or a month," a trader said.

For emerging markets "it's a calm period in a stormy sea," the trader said, adding that volumes will continue to dwindle into Easter weekend.

In the secondary, the day's trading leader among the major credits was Brazil's sovereign due 2037, which added on 1 point while equity markets internationally and in the United States were losing.

In the primary, Chile's Parque Arauco SA provided a rare dollar-denominated deal by pricing a total of $170 million over two tranches.

Volatility was calm during early trading but fell short of a try for 30.00 in the afternoon, ending up by 1.05 at 29.84, according to the VIX index. The index is a common measure of market volatility.

Treasuries were again on the rise as emerging markets widened out by 7 basis points to a spread of 312 bps, according to JPMorgan's EMBI+ index. The EMBI+ estimates the amount of extra yield investors will demand to hold assets in emerging market debt.

LatAm climbing despite equities

In Latin America, prices were moving against the grain of tumbling equities despite thin Holy Week volumes.

"We have followed Treasuries up for all the wrong reasons," said IDEAglobal's Alvarez, adding that the success in emerging markets is a signal of a "flight to safety."

The credit market also seems to be ignoring a "downdraft in commodities" as well as a lagging Latin American equity picture, he said.

Still, Wednesday's "bond performance has been better, basically from Brazil and a little bit of Colombia," he said.

The Brazilian 11% sovereign bonds due 2040 were better by 0.55 point to 134.05 bid, 134.15 offered. The 7 1/8% bonds due 2037 were up 1 point to 108 bid, 108.25 offered.

The Colombian 8 1/8% bonds due 2024 slipped 0.75 point 114.5 bid, 115 offered.

Elsewhere, in Argentina the government unveiled the new Manuel Belgrano power station in the district of Campana in the province of Buenos Aires on Tuesday, according to the Buenos Aires Herald.

President Cristina Kirchner, who has fought a power crisis since taking office, attended the ceremony, which included the powering of the plant's open cycle turbine that will supply 271 megawatts to the national power grid.

The 8.28% Argentine discount bonds due 2033 added 0.75 point to 86.5 bid, 87.2 offered.

Also in Latin America, Venezuela's 9¼% government bonds due 2027 tacked on 0.25 point to 96.35 bid, 96.7 offered.

Although in general, "the high beta is a little weaker on the day," he said.

Bear, JPMorgan deal hangs over Caribbean

Meanwhile, bond prices in the Caribbean and Central America may be in jeopardy if Bear Stearns is forced to sell its holdings in the region, a market source said.

Bear is known for having a niche in the Caribbean, the source said, and if it is forced to liquidate assets there, prices, especially in the Dominican Republic, may suffer the damage.

The country has already been feeling the effects of the liquidity crunch.

An auction of local-currency government bonds went undersubscribed and began a period of widening at the short end of the curve, the source said.

Emerging Europe trails off

"It's dead quiet as we creep toward Easter," a trader said.

"There is a little bit of greed creeping back in," he said, but "there is a better tone to the market."

In Russia, president-elect Dmitry Medvedev spoke out against corruption, saying it "still hampers the country's development," according to the Itar-Tass News Agency.

He called on the public chamber, an extra-governmental oversight body, to form "a national plan, and approaches to it are now being outlined," he said.

The Russian sovereigns due 2030 added just 0.1 point to 115.125 bid, 115.25 offered.

Turkey boiling?

Investors continue to keep an eye on a building political pressure cooker in Turkey, according to a market source.

The charges of anti-secularism leveled against the highest levels of the ruling AK party by the prosecutor general, Abdurrahman Yalcinkaya, may set off a strong response from the government or even new elections, the source said.

The charges brought against the AK party include demands that president Abdullah Gul, prime minister Tayyip Erdogan and 69 other party members be barred from public office for five years.

The government may answer with new elections to demonstrate its popular support or it may try to amend the constitution to prevent the breakup of the party, the source said.

Any of the possible solutions may come too late to prevent negative pressures on the country's sovereign issues and on the lira, the source said.

The constitutional court said it might need up to 10 days from March 17 to determine the validity of the prosecutor's case, but meanwhile charged words have been traded from both sides of the argument.

However, the highly visible army has largely remained above the fray.

The lira was spotted trading at 1.244 to the dollar.

The Turkish bonds due 2030 slipped 0.3 point to 150.5 bid, 151 offered.

Asia widens on 'choppy' session

In Asian trading, "there was not very good price action, actually," a trader said about the session on Wednesday.

Although, "the swings have been pretty dramatic," he said, "We're wider than we closed yesterday."

The Asian high-yield index is 20 bps wider, and the investment-grade index is 10 bps wider, he said.

"It's been very choppy," he said, "It's a combination of everything; we've got Holy Week in combination with the rolling of the indices."

In the Philippines, the central bank's cuts to its overnight rates were unable to spur greater volumes of loans, leaving the growth figures under 10%, the central bank said, according to the Manila Times.

Overnight transactions between lenders grew by 9.3% in January, compared to 5.8% growth in January 2007 and 7.9% growth in December, the report said.

The manufacturing sector borrowing, which usually makes up the largest portion of the loans, dropped 5% in January.

Sectors increasing their share of the country's loans were the financial institutions, real estate and utilities.

The Philippine sovereigns due 2030 gained 0.5 point to 129.875 bid, 130.375 offered.

In Indonesia, the finance ministry plans to accept bids, in late March, from local and foreign banks to finance five power plants expected to cost $2.18 billion, the Jakarta Post reported.

About $1.85 billion, or 85%, of the cost will be raised through loans within the next two to three months, the report said.

The power program, which began in 2006, is expected to generate about 10,000 megawatts of power by 2010 with 35 new power plants in and around Java.

The Indonesian sovereigns due 2018 were seen unchanged at 105 bid, 105.5 offered.

Elsewhere in Asia, Pakistan's government bonds due 2017 were quoted at 83 bid, 86 offered.

Parque Arauco prices $170 million

In recent sessions the primary market has been limited to small numbers of local-currency deals.

"The environment is too fertile for rumors," a trader said.

"The market just doesn't stay stable for long enough to get deals done," he said.

However, on Wednesday Parque Arauco SA announced the results of an offering of a total of $170 million in two tranches.

The $110 million 21-year tranche priced with a coupon at the rate of Chilean consumer price index plus 3.79%, or a 72 bps spread over the central bank's benchmark rate.

The $60 million 10-year tranche priced with a coupon at the rate of Chilean consumer price index plus 2.79%, or 62 bps over the central bank's benchmark rate.

Proceeds will be used to finance the company's future investments.

The company said the offering was 2.5 times oversubscribed.

Parque Arauco is a Santiago, Chile-based shopping center developer.

In local-currency deals, India's Corporation Bank (AAA, local/LAAA, local) priced 2 billion rupee 10-year unsecured subordinated bullet bonds with a coupon of 9.3%.

Corporation bank is a Pandeshwar, India-based retail and commercial bank.

Also, China's Bank of Communications Co. Ltd. announced plans to issue bonds worth up to 5 billion yuan with a maturity of one to three years.

Proceeds will be used for granting loans, general working capital and for general corporate purposes.

The bank is a Shanghai-based retail and commercial bank.

Meanwhile, Malaysia's Multi Vest Resources Bhd. withdrew its offer of 350 billion rupiah notes.

Deutsche Bank Bhd. of Malaysia was asked to act as the bookrunner for the deal.

The company said Deutsche blamed adverse market conditions stemming form the subprime mortgage crisis for the deal's cancellation.

Multi Vest is a Selangor, Malaysia-based natural resource developer.

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