Emerging markets tighter to mixed; Hutchison Whampoa prices $1.5 billion; rally pace slows

By Aaron Hochman-Zimmerman

New York, April 6 - Emerging markets activity began to slow its long-standing rally pace at the beginning of a shortened week full of religious observances.

Many countries were pulled wider as equities took a mild downturn; but other credits managed to counter- balance some of the losses as they tipped to the tighter side.

Still, the rally and the aggressive sentiment were "fading a bit," a buysider said.

After the weeks of buying "it makes sense to take a bit of a breather," the buysider said.

Volumes were healthy on the secondary side, but after China's Hutchison Whampoa Ltd. priced $1.5 billion at Treasuries plus 475 basis points, "I don't think it will be extremely too busy," a strategist said.

The holidays and the new quarter will probably be enough to push the majority of business to a later date, he said.

There were rumors of a new sovereign from South Africa, but no specifics were attached to the whispers.

"I remember the [previous] rumors but they never materialized," the buysider said.

Volatility climbed up beyond 40.00 as it took on 1.23 to end at 40.93, according to the VIX index. The index is an often used gauge of market volatility.

The emerging markets sector was seen tighter by 9 bps at a spread of 570 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.

The EMBI global diversified index, which represents sovereigns and quasi-sovereigns, was tighter by 5 bps with a spread of 625 bps.

The diversified index has a less strict liquidity rule for inclusion.

Emerging Europe leads higher

Emerging Europe was strong even as stocks cooled.

Some countries, such as Bulgaria, were seen wider, but many of the larger credits, such as Turkey and Russia, advanced to help the category overall.

In Russia, prime minister Vladimir Putin is expecting a difficult year for the economy, he told parliament.

He announced plans to combine $90 billion from the federal budget with tax breaks to create a stimulus package.

Much of the aid will be given to develop science and technology and to defense contractors, reports said.

The Russian government bonds due 2030 were better by 1.25 points at 97.5 bid.

In Ukraine, president Victor Yushchenko has made the country's moves to the West part of the beginning of his re-election bid.

Yushchenko met with NATO officials where he reiterated his desire for Ukraine to become a full member of the alliance.

The president also expressed his feeling of optimism brought on by the recent acceptance of former Communist Bloc Albania and Croatia into the western alliance.

In addition to the diplomatic meetings, Yushchenko told his own parliament that the country "stands at the doorstep of exceptional steps, which were impossible five years ago."

Since his taking office Ukraine has moved close to signing the Eastern Partnership energy agreement with the West, initiated talks on visa-free Ukraine-European Union travel as well as a free trade zone with the European Union, the web site noted.

Obama, IMF talks lift Turkey

Also in Turkey, equity, currency and credit markets were up broadly even as the rest of Europe saw some selling as a reaction to weeks of gains.

The prospect of renewed talks with the International Monetary Fund encouraged risk-takers along with a visit from president Barack Obama.

The trip was seen as significant as it was the first Muslim country visited by Obama as president.

With Turkey president Abdullah Gul and prime minister Recep Tayyip Erdogan in attendance, Obama encouraged the Turkish parliament to continue to make the reforms necessary for Turkey's entrance into the European Union.

The lira was seen trading at 1.59 to the dollar.

The Turkish sovereign bonds due 2030 also tacked on 1.25 points to 141 bid.

Hutchison prices $1.5 billion, tightens

Hutchison Whampoa Ltd. priced a $1.5 billion 10-year senior unsecured bond at a spread of Treasuries plus 475 bps (A3/A-/A-), according to a source familiar with the deal.

The bonds priced in line with talk at 99.676 with a coupon of 7 5/8% to yield 7.672% and found strong interest in the market, the source said.

The book was oversubscribed by 4.5 times, he said.

"That was The Street bidding," a strategist said about the oversubscribed book.

Deutsche Bank, HSBC and JPMorgan acted as bookrunners for the deal.

Hutchison Whampoa is a Hong Kong-based infrastructure conglomerate.

The new bonds traded tighter to 467 bps bid, 463 bps offered.

In cash terms the bonds traded up to 100.30 bid, 100.60 offered.

Asia trades mixed

Many of the better traded issues were strong in Asia, but the category was mixed as China felt some widening.

In Indonesia, lower interest rates have not led to growth for banks or an easing of liquidity, said a report by Bank Mandiri, according to the Jakarta Post.

The central bank interest rate is 7.5%, but smaller banks have been charging 12% to 16%, according to the report.

"Smaller banks will keep their interest rates high because they are worried their clients will transfer their savings and deposits to larger banks, which would then hurt their liquidity even more," Mandiri president director Agus Martowardoyo said.

The Indonesian sovereign bonds due 2019 were spotted at 111.5 bid.

Also in Asia, the Philippines' government bonds due 2030 were seen at 122 bid, 123 offered.

LatAm better still

Latin America opened the week higher, though there were still questions over whether or not the rally would unravel or continue to roll.

"There's really nothing to speak of," said a strategist.

"The market is trying to find out if it will take some profits or continue to rally," he said.

Of course, the action will likely be subdued by the turning of a new quarter on top of Holy Week, which will particularly sidetrack Latin America throughout the week and close many markets on Thursday and Friday.

In Argentina, bonds crept slightly higher as the 8.28% Argentine discount bonds due 2033 added 0.25 point to 28.25 bid, 28.75 offered.

In Venezuela, oil prices scaled back to as little as $50 per barrel, but still the 9¼% Venezuelan government bonds due 2027 jumped 1.25 points to 61.25 bid, 61.75 offered.

Meanwhile in Brazil, the 11% sovereigns due 2040 were quoted at 129 bid, 129.25 offered.

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