Emerging markets end stronger; Pemex prices $2 billion 10-year bonds; emerging Europe leads winners

By Aaron Hochman-Zimmerman

New York, Jan. 27 - Emerging markets had a largely calm but constructive day on Tuesday, led by the European time zone, which boasted big gains from Israel Electric Corp. Ltd. and Russia on the sovereign side.

Israel Electric traded better by as much as 6 points during the session, which boasted a healthy tone despite light liquidity.

"People think the Obama package is going to make a difference, equities look OK; it's a combination of a lot of things," a trader said.

On the primary side, the semi-sovereign oil firm, Mexico's Petroleos Mexicanos SA, priced $2 billion of 10-year bonds on its talk of an 8¼% yield.

Calyon, Citigroup and HSBC brought the issue to market.

Meanwhile, from the major markets, volatility spiked early in the session but calmed and settled lower by 3.44 at 42.25, according to the VIX index. The index is a common measure of market volatility.

Also, with help from Treasuries, emerging markets as a group tightened by 3 basis points to a spread of 651 bps, according to JPMorgan's EMBI+ index. The EMBI+ determines the amount of extra yield investors will demand to hold assets in emerging market debt.

Pemex prices $2 billion

Pemex made the day's big splash as it priced $2 billion 10-year senior unsecured bonds at 98.313 with a coupon of 8% to yield 8¼% (Baa1/BBB+/BBB).

The bonds were talked at a yield of 8¼%.

Pemex is a Mexico City-based government-run oil firm.

Also in Mexico, after a recent admission that the economy is in recession, the central bank announced that the 3.6% drop in remittances for 2008 is the first time remittances fell since the bank began to track the figure, the Associated Press reported.

The bank blamed a U.S. recession and tighter enforcement of immigration laws for the loss.

No prediction for 2009 numbers came from the central bank, but Mexico's Banamex forecast another 2.5% drop, the report said.

"You've got to have foreseen that," said Enrique Alvarez, a Latin America debt strategist at think tank IDEAglobal, as the U.S. construction and service sectors have been decimated by the global downturn.

The Mexican 5.95% bonds due 2019 were unchanged at 97.7 bid, 98 offered.

Quiet LatAm angles up

"There's not a whole lot," said Alvarez about the rest of the category, but if anything there is "a slight upside skew" to trading based on a positive U.S. Treasury auction.

Emerging markets "are very much constrained by the external stresses," he said, and "Treasuries are going to be a key going forward."

Elsewhere in Latin America, Venezuela's bonds were trading lower amid illiquidity, Alvarez said.

"You can also point a finger at crude oil" for the drop, he said.

Light sweet crude was seen trading as low as $42 per barrel.

The 9¼% Venezuelan bonds due 2027 dropped by 2.5 points to 52 bid, 53.5 offered.

Also, Brazil's 7 1/8% bonds due 2037 were improved by 0.3 point to 104 bid, 104.8 offered.

Argentina battles drought

In Argentina, president Cristina Kirchner declared an agricultural emergency as a record-setting drought continues to grip the country's farmland.

Some estimates have gauged the damage at nearly $4 billion, the BBC reported.

In order to relieve the farmers, the presidential declaration of emergency status defers many farmers' income tax payments for one year.

Kirchner has had a difficult relationship with farmers as the government battled with agricultural interests for higher taxes throughout the summer of 2008.

Kirchner reminded farmers that extraordinary measures are being taken to protect them.

"If hotel owners are struggling because the weather is bad and tourists don't come, or if business is bad for restaurant owners, shopkeepers, or builders, there is no law that says they shouldn't pay taxes all year and can put it off to the following year," she said, according to the BBC.

The 8.28% Argentine discount bonds due 2033 were seen flat at 34.75 bid, 35.5 offered.

"It's going to be a theme down the road," Alvarez said about the drought.

"It will come around and it comes at a very poor moment, obviously," he said.

Emerging Europe in demand

Emerging Europe put up a strong showing after a slow Monday, a London-based trader said.

"There's quite a bit going on," he said, "plenty of noise ... but not a lot of trades getting consummated."

The new 9 3/8% bonds from Israel Electric, which priced at 99.158 on Friday, jumped "through the roof" on Tuesday's enthusiastic sentiment, the trader said.

The bonds traded as high as 105 bid, he said. "It's in demand, that baby."

Russia also had its climbing boots on as it tacked 3.75 points onto its benchmark bonds due 2030.

The bonds were seen trading at 93.25 bid, 93.5 offered.

Meanwhile, Russia's diplomatic trouble continued as a defense ministry spokesman accused Georgia of holding a Russian soldier who was allegedly captured in the breakaway Georgian region of South Ossetia, reports said.

Tbilisi claimed the soldier deserted the Russian army in order to surrender to Georgian police and request asylum.

Pipeline in the pipeline

Also in Hungary, officials from the European Union, investment banks and Turkey met in Budapest to discuss the financing of the Nabucco pipeline project, which would connect the Caspian Sea gas producers with Western Europe, bypassing Russia and Ukraine.

All sides were encouraged by the prospect of diversifying gas supply routes, but questions remained over which countries and banks would pay for the pipeline's construction, reports said.

The Ukrainian bonds due 2016 were quoted at 46 bid, 48 offered.

Report: Indonesia plans sukuk

Rumors of a sovereign sukuk from Indonesia began to subside in the late days of last week, but not without doing damage.

Investors feared an oversupply of paper in the market, but buying resumed when rumors began to fade.

However, on Tuesday the Jakarta Post reported that finance minister Rahmat Waluyanto said the Islamic bond will be offered from Jan. 30 to Feb. 20.

The sukuk will likely carry a maturity of three years and yields of 10½% to 11.2%, he said.

"The yield will be more competitive than an average deposit rate in state-run banks," Rahmat said in the report.

The offer may be limited to the local market.

The Indonesian bonds due 2018 added 2 points to 79 bid, 81 offered.

Asia remains quiet

"The markets are better," a trader said, but "it's very thin" as Chinese New Year kept markets closed for another day.

Singapore will reopen Wednesday, Hong Kong on Thursday and China next Monday.

Still, through the thin volumes "we've seen good buying of Indo the last couple of days," the trader said.

"Real money" and hedge funds have driven prices up 2 or 3 points across the board, he said.

The typically outperforming Philippines "had been trading softer, but it's bouncing back nicely today," he said.

The Philippine sovereign bonds due 2030 tacked on 1.5 points to 111.5 bid, 112.5 offered.

Pakistan's bonds due 2017 were quoted at 40 bid.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.