Emerging markets jump with equities; spreads come in on light trading; Hungary prices CHF 350 million

By Aaron Hochman-Zimmerman

New York, April 16 - Emerging markets marched higher to the strong beat of equities, which put a much improved sentiment around trading desks.

In the primary, Hungary kept the pricing streak in the broader emerging markets alive at four days, but there have been "two weeks of strong tone and we haven't done $1 billion of supply," said a trader, who was encouraged by recent sessions but still underwhelmed by the primary's performance.

"The primary's been essentially shut for six months," he said.

"The issue now is, does this better tone to the market sort of open up issuance?" he asked.

In the secondary, trading was light but positive, a trader said.

"We saw tightening in the majors," he added.

As equities launched skyward, volatility slumped by 2.25 to close at 20.53, according to the VIX index. The index is a common yardstick for market volatility.

Bids up in emerging Europe

"It's all stronger," a trader said about the action in emerging Europe on Wednesday.

"We can't really compete [with equities]; it's quiet, but stronger," he added.

Some of the telecom names saw the major activity, he said, with "real buying, actual lifting of offers."

"The other names aren't really trading."

In Turkey, the government must preserve stability and meet E.U. political and economic standards to improve its standing with foreign investors, a survey by Ernst & Young of emerging European markets found, according to the Turkish Daily News.

Turkey reached 50% approval in the survey, just behind Romania's 52%, the report said.

Bulgaria ranked third with 40% approval.

The Turkish sovereigns due 2030 were spotted at 152 bid, 152.5 offered.

Meanwhile, Ukraine prime minister Yulia Timoshenko said the country is ready to accept responsibility for a future gas shortage in Europe involving gas transported through Ukraine.

"Ukraine is prepared to take on that responsibility, with all that it implies," she said at the Parliamentary Assembly of the Council of Europe (PACE) in Strasbourg, France, according to the RIA Novosti News Agency.

Ukraine has threatened to siphon off gas supplies intended for Europe if Russia cuts shipments to Ukraine.

Kiev is still in negotiations with Russia over the last pricing conflict.

Also in the commonwealth of independent states, Georgia's breakaway republics of Abkhazia and South Ossetia may soon enjoy closer relations with Russia.

President Vladimir Putin ordered the foreign ministry to deliver aid and establish closer ties to the largely ethnic Russian regions.

The Tbilisi government held emergency meetings and warned Russia not to recognize the independence of the two northern provinces.

The Russian foreign ministry has stated that it hopes to avoid a confrontation with Georgia.

Russian oil past its prime?

In Russia itself, reports began to surface that the oil supply may have already seen its peak.

Russian oil production fell 1% in the first quarter, and a $1 trillion investment may be required to sustain its current levels of output, OAO Lukoil vice president Leonid Fedun said.

"We now see production peaked last year," Mikhail Kroutikhin, editor of the Russian Petroleum Investor, said in a BBC report on Wednesday.

"It's one of those stories, in my head, that you need to put into context," the trader said, adding that "you'll see the counter story tomorrow."

"It's mildly of interest ... Does it have a material impact? I don't think so," he said.

The Russian government bonds due 2030 were quoted at 115.5 bid, 115.6 offered.

Hungary prices, Evraz kicks up rumors

The primary continued to produce new issues, but after the market was disabled for so long, investors are anxious to see more.

As market watchers looked for the next big issue, rumors bubbled of a deal from Russia's Evraz Group SA of a near-term two-tranche offering with a larger deal to follow, a market source said.

"Supposedly the deal is building up fine, but the fact the dealer had to call tells me interest could be tight, although timing may be OK with stock markets up," he said.

"As with recent corp deals, they may print the new issue at a discount to existing bonds with the latter paying for the 'discount,'" he said.

The Republic of Hungary (A2/BBB+/BBB+) priced CHF 350 million of bonds in two tranches.

Hungary priced a CHF 150 million five-year bond at 100.197 with a coupon of 3½% and a spread of Swiss franc Libor plus 50 basis points.

A CHF 200 million eight-year bond was priced at 100.461 with a coupon of 4% and a spread of Swiss franc Libor plus 75 bps.

ABN Amro and Credit Suisse were the bookrunners for the deal.

Proceeds will be used for general financing purposes.

Asia jumpy, but tighter

Asian trading was "running like crazy," a trader said, as spreads came reeling in by 20 bps.

Volumes were still thin, and "there's obviously a much better tone," but "it's impossible to navigate the market," he said about the volatility.

The Asian high-yield index first traded at 560 bps on Wednesday but later in the day was trading near 537 bps, he said.

Also, "there was a lot more cash buying than CDS and indices," he said.

In Indonesia, the central bank plans to limit corporate bond holdings to 60% of each company's capital in order to cut credit risk and bolster lending, the Jakarta Post reported.

The new ruling is aimed at spreading risk under the current adverse lending conditions.

Although, "I'm not sure how significant that'll be," the trader said.

Companies which currently exceed 60% will be grandfathered in for three years.

The Indonesian sovereigns due 2017 held flat at 104.25 bid, 104.75 offered.

The Philippines' economy has now coupled too closely with the global market, said ING, according to the Manila Times.

The Philippines' score on the bank's investor dashboard sentiment index fell to 121 points in the first quarter, down from 153 points during the last quarter of 2007.

The score is considered "optimistic," but the country now ranks sixth in Asia, the report said.

"Although the domestic economy seems strong, supported by inflows of remittances from Filipinos working overseas and a stronger peso, the political uncertainty seems to have a significant impact on investors' outlook on the future," said Cesar Zulueta, ING's investment management managing director for the Philippines, in the report.

The Philippines' government bonds due 2030 added 0.25 point to 132.5 bid, 133 offered.

Elsewhere in Pakistan, former prime minister Nawaz Sharif asked the United States to form closer ties to the opposition-dominated parliament.

"I think he's lost his writ to a very great extent, he has outlived his utility for anything, and the present U.S. administration must know that if they have to work, they have to work with the elected parliament, the elected government," Sharif said about president Pervez Musharraf in an interview with the BBC.

The Pakistani bonds due 2016 slipped 0.5 point to 86 bid, 89 offered.

LatAm tighter on equity rally

Trading in Latin America improved and spreads tightened as equities were charging and Treasuries were retreating in the United States.

In Argentina, the government's ban on wheat exports was extended to ensure its own supplies will last, according to the Buenos Aires Herald.

Argentina is the world's fourth-largest exporter of wheat, the report said.

Meanwhile in Venezuela, the parliament approved a measure that will tax the profits of foreign oil producers by 50% if oil is selling for $70 per barrel or more. The tax rises to 60% when oil prices break $110 per barrel.

The new program is expected to bring an additional $9 billion to the country's budget.

Also in Latin America, Mexico's legislators, who are not encamped in the Congress building, changed venues Tuesday to conduct business despite the protests from the left over the proposed privatization of the state oil firm Petroleos Mexicanos SAB de CV (Pemex).

Oil continued to set new record prices. Light sweet crude was seen trading over $115 per barrel on Wednesday.

Elsewhere, Brazil's highly traded 11% government bonds due 2040 added 0.4 point to 136.3 bid, 136.4 offered.

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