Emerging markets jump with equities; Abu Dhabi to sell $3 billion bonds; other deals expected

By Aaron Hochman-Zimmerman

New York, March 31 - Emerging markets performed well as investors were in a buying mood as the first quarter closed.

Bond price levels were up across the board, and the primary market was buzzing with activity.

New debt offerings from Russia's OAO Gazprom, Brazil's Odebrecht Finance Ltd. and Qatar joined the massive $3 billion deal from Abu Dhabi.

All four are expected to price offerings this week, sources said.

The sentiment was encouraged by both the new deals and the equity rally, but investors were still wary and conscious that credit will continue to follow equities in whichever direction they choose.

Meanwhile, equities served to chip away at volatility as it dropped and bounced back late in the day to end lower by just 1.40 at 44.14, according to the VIX index. The index is a common measure of market volatility.

As a sector, emerging markets narrowed by another 5 basis points to a spread of 634 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.

Emerging Europe levels up

Emerging Europe was "all in recovery mode" on Tuesday, a London-based trader said before heading straight home as flocks of G-20 protestors in the city forced tighter security measures.

Some bankers were even encouraged not to dress "like bankers" in order to not provoke the protestors.

The United Kingdom's Telegraph suggested bank employees skip the high-priced clothing names in favor of the local shopping strip: "Bypass Jermyn Street and head straight to your local high street for a quick, stylish and credit-crunch friendly fix."

Despite the security concerns the market was "grinding back" in line with equities, the trader said.

OAO Gazprom announced talk in the 9% area for a minimum CHF 200 million two-year bond.

BNP Paribas will act as bookrunner for the deal. Books close on Thursday.

The talk seems to match investor sentiment, the trader said, but in Swiss francs, "it's a bit niche."

Elsewhere in Russia, the federal government will support the regions with 300 billion rubles in aid in 2009, deputy prime minister Alexander Zhukov said, according to the Itar-Tass News Agency.

Half of the money will be distributed in the form of transfers, while half will be made available as loans, he said.

"The regions should implement all their social liabilities to the residents in full," he said in the report.

The Russian sovereigns due 2030 added 0.75 point to 93.75 bid, 94.25 offered.

In Turkey, the central bankers will press forward against the economic crisis with a mind toward easing rates, a minutes release indicated on Tuesday.

"It was stated that some easing in fiscal policy is understandable under the current conditions," said the minutes from the March 19 meeting of the central bankers.

The Turkish government due 2030 improved by 0.4 point to 133.75 bid, 134.75 offered.

Abu Dhabi readies $3 billion

Also in the emerging European time zone, the Emirate of Abu Dhabi in the United Arab Emirates will issue $3 billion in equal five- and 10-year tranches (Aa2/AA/AA).

The five-year bonds were talked at Treasuries plus 400 bps. The 10-year bonds were talked at Treasuries plus 420 bps.

Talk for the five-year bonds was revised from the Treasuries plus 425 bps area, while talk for the 10-year bonds was revised from the Treasuries plus 437.5 bps area.

The bonds are expected to price early Wednesday in New York.

Citigroup, Deutsche Bank and JPMorgan will act as bookrunners for the deal.

Meanwhile in the Middle East, Qatar plans to issue a benchmark-sized bond via Barclays, Citigroup, Deutsche Bank and JPMorgan, according to a market source.

LatAm tracks equities higher

Latin America went along for the ride on "a tracking move with U.S. equities," said Enrique Alvarez, a Latin America debt strategist at think tank IDEAglobal.

Some investors took notice of Ecuador, which is expected to announce terms for a default renegotiation, but mostly levels rose evenly.

In Mexico, the national oil firm Petroleos Mexicanos may also be in the market shortly, Alvarez said, although the offer may be in pesos.

However, the confidence in the peso is notable, he said.

Kimberly-Clark de Mexico may also issue in pesos, he said.

Taken together, "it may be a sign things are thawing," he said.

The government has hinted that it could draw $30 billion to $40 billion from the International Monetary Fund in order to support the currency.

"So that could be seen as some sort of positive," Alvarez said, but as always, Mexico is "subject to dismal economic performance."

The 5 5/8% Mexican bonds due 2014 took on 1 point to 103.25 bid, 103.625 offered.

The peso was seen trading at 14.1745 to the dollar.

In Argentina the 8.28% discount bonds due 2033 tacked on 0.625 point to 27 bid, 28 offered, while in Venezuela the 9¼% sovereigns due 2027 improved by 0.8 point to 57.2 bid, 58 375 offered.

Odebrecht builds on primary

Also in Brazil, the construction firm Odebrecht Finance announced plans to price $150 million five-year bonds (/BB/BB+) this week, according to a market source.

The bonds will be placed during the week of March 30 on behalf of Constructora Norberto Odebrecht SA.

Banco Santander and Banco Itau will act as bookrunners for the deal.

Proceeds will be used for general corporate purposes and reinvestment.

Brazil's 5 7/8% bonds due 2019 added 1 point to 97.375 bid, 97.75 offered.

Asia stronger, good tone

Asian levels followed equity strength closely on Tuesday.

Investors were optimistic as new risk appetite was fueled by primary market chatter.

In the Philippines, external debt grew by $374 million to $53.9 billion through the first quarter, the central bank reported.

Still, gross international revenue managed a "historic high" at $37.6 billion by the end of 2008, a bank statement said.

"Major external debt indicators continued to improve in 2008 due to the country's substantial foreign exchange receipts, comfortable level of international reserves, and sustained growth in national income," bank governor Amando Tetangco said in a statement.

The peso was seen trading at 48.365 to the dollar.

Also in Indonesia, three of the country's major banks, Bank Mandiri, Bank Negara Indonesia and private Bank Central Asia all posted profits in 2008, the Jakarta Post reported.

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