Emerging markets close week stronger; KDB prices $2 billion; quiet trading on shortened session

By Aaron Hochman-Zimmerman

New York, Jan. 16 - The supply of new emerging market bonds extended into Friday after a mid-week hiccup disturbed an otherwise strong showing.

The Korea Development Bank put another $2 billion of supply in the market from the Asian sector, capping a week that began with a $2 billion offering from the Export-Import Bank of Korea.

The former priced at Treasuries plus 675 basis points, while the latter priced at Treasuries plus 677 bps. Both came at the narrow end of their talk.

Still, investors looked ahead to future issuance, possibly from Mexico's Pemex or Indonesia, but the action would have to wait.

In trading, "the high-yield names [are] trading a little better," a buysider said, but even as "everything is tighter ... returns are flat."

Equities whipped around in the morning but clawed back to positive ground by the time the bond market closed early on Friday in honor of the Martin Luther King Jr. holiday in the United States on Monday.

By the bond market's 2 p.m. ET close, volatility was lower by 2.18 at 48.82, according to the VIX index. The index is a frequently used yardstick of market volatility.

As a sector, emerging markets were seen tighter by 31 bps to a spread of 665 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.

KDB prices $2 billion

South Korea's KDB priced $2 billion five-year fixed-rate senior notes (Aa3/A/A+) at 99.145 with a coupon of 8% and a spread of Treasuries plus 675 bps.

The bonds were talked at 675 bps to 700 bps over Treasuries.

BNP Paribas, Deutsche Bank, HSBC, Merrill Lynch and RBS acted as bookrunners for the registered deal.

There is a put at par if there is any decrease in government holding of the bank.

Proceeds from the sale will be used for general operations, including extending foreign currency loans and repayment of maturing debt.

The KDB is a Seoul-based development lender.

Asia still hangs on

On the trading side, light action left the Philippines' bonds due 2030 flat at the familiar level of 111 bid, 113 offered.

Meanwhile, the government's desire to push a big economic stimulus plan faced the obstacle of a lack of financing, the Manila Times reported.

To fund a stimulus, the government is considering hiking taxes on alcohol and tobacco, said finance secretary Margarito Teves, in the report.

The taxes, Teves said, "would be acceptable to the Filipino public," and expect to bolster collections by PHP 20 billion to PHP 30 billion in the first year.

However in Indonesia, bonds were stable, but at depressed levels as an expectation of new supply undercut values.

"The longer they wait, the more uncertainty there will be," a buysider said.

The Indonesian bonds due 2018 were unchanged at 76 bid, 80 offered.

Emerging Europe roars back

In emerging Europe, the market saw an "almost unbelievable" turnaround on Friday.

"Yesterday looked pretty damned ugly," a trader said, although the market remained "schizophrenic" in its volatility.

Turkey's bonds looked well-healed after Thursday's beating.

The Turkish bonds due 2030 were quoted at 143 bid, 144 offered.

Market unburned in gas fight

Meanwhile in emerging Europe, the gas crisis only seemed to burn more furiously on Friday as the sides headed into Saturday's negotiations in Moscow.

Still, the political battle seemed to go nearly unnoticed by investors.

"I think people get fatigued of the whole thing ... people are used to it by now," the trader said about periodic flare-ups of a historical rivalry between Russia and Ukraine.

"I suppose it will be this way for years to come," he added.

Russian prime minister Vladimir Putin met with German chancellor Angela Merkel, who restated her warning that, by its actions, Russia risks its standing as a reliable energy source for Europe, reports said.

Eastern European countries, such as Bulgaria, Moldova, Serbia and Slovakia, have started to ration fuel and electricity.

Ukraine has also been faced with a shortage as the Russians continued to withhold gas until 2009 prices were settled with Kiev.

Still, Europe had enough blame to spare some for Kiev, even as the national oil firm NJSC Naftogaz Ukrainy claimed it "is deeply indignant at the constant distortion of content of the documents being sent to [Russia's] Gazprom OJSC," a statement said.

The Ukrainian bonds due 2016 were quoted at 45 bid, 48 offered.

Light sweet crude was seen trading at $35 per barrel.

Meanwhile, Russia may be ready to expand its influence in the world's major energy producing region.

Conflicting reports suggested that Russia may be in talks to establish permanent naval bases in Libya, Syria and Yemen.

LatAm issuers waiting

In Latin America, "there's no news for the moment," a syndicate official said.

"They're bound to come, it's just a matter of timing," he said about possible deals from Pemex or a sovereign offering from Peru.

Meanwhile, investors are watching high-yield deals in the United States price with yields near 10½% and 11%, he said.

Those B and BB rated credits may "provide momentum" for Latin America and all of emerging markets, he said.

Elsewhere in Mexico, the central bank lowered its benchmark interest rate by 50 bps to 7¾%, according to a bank statement.

The cut came in order to spur growth in the face of an ever-increasing global economic slowdown, the statement said.

The peso was seen trading at 13.958 to the dollar.

In trading, Argentina's 8.28% discount bonds were seen lower by 0.5 point at 35 bid, 36 offered, while Brazil's 11% bonds due 2040 were quoted at 126.5 bid, 126.75 offered.

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