Emerging markets ride higher; Psalm, South Africa talk benchmark offers; trading opens slowly

By Aaron Hochman-Zimmerman

New York, May 18 - Emerging markets were in no rush to trade as the week began Monday morning, but the restless primary was ready to push through its backed up deals.

The Philippines' Power Sector Assets and Liabilities Management Corp. and South Africa both issued talk for their benchmark offerings while hungry, but finicky investors waited.

"The market feels OK," a strategist said.

"The real question is: Does this rally have footings?" the strategist asked, and "I don't know the answer."

The deals waiting in the pipeline will price this week, "if things stay like this," the strategist said, but "there are still a lot of bears out there."

In trading, Asia seemed untroubled by the new supply and wound tighter.

The Philippines' bonds due 2030 were spotted at 122½ bid.

From the major markets, equities' successes nearly pulled volatility below 30.00, but the VIX index only shed 2.88 to close the day at 30.24. The index is a frequently used measure of market volatility.

As a sector, emerging markets tightened by 14 basis points to a spread of 486 bps, according to JPMorgan's EMBI+ index. The EMBI+ estimates the amount of extra yield investors are willing to demand to hold assets in emerging market debt.

South Africa, Psalm take shape

The slow start to the week's trading placed the primary market at center stage.

South Africa set a maturity of 10 years and talk of Treasuries plus 387.5 bps for its upcoming dollar-denominated benchmark-sized bonds (Baa1/BBB+/BBB+).

Barclays and JPMorgan will act as bookrunners for the deal, which is expected at $1 billion.

Standard Bank will act as co-lead manager for the registered deal.

"They're probably expecting a coupon around 7%," a source said.

At a similar size and maturity, the Philippines' quasi-sovereign Power Sector Assets and Liabilities Management (Psalm) announced talk in the 7½% area for its dollar-denominated benchmark-sized 10-year bonds (B1/BB-/).

The bonds will price on Tuesday on behalf of the public utility Napocor.

Deutsche Bank, HSBC and Morgan Stanley will act as bookrunners for the deal.

The roadshow was being held in Manila on May 14, in London on May 15, in New York on May 18 and in Boston on May 19.

Power Sector Assets and Liabilities Management is a Manila-based power company.

The Philippine bonds were "actually quite strong" in the face of the new supply, a trader said.

Meanwhile in the Philippines, consumer loans grew by 2.5% to PHP 380 billion in the fourth quarter of 2008, according to data released by the central bank.

Residential real estate loans made up the largest portion of the loans at 40.5%. Credit cards made up 29.1% of the loans with car loans in third at 20.7% of the lending market.

The Philippine government bonds due 2030 were quoted at 122½ bid, 123½ offered.

Asia trades like summer day

Asia traded at a sluggish and slow summer pace on Monday, a trader said, but spreads were all tighter thanks to bright headlines and post-election good feelings in India.

"The market's quite strong on the back of India," the trader said, adding that the elections are probably better for India's economy in the future rather than the very near term.

"It could be a catalyst a few years down the road," he said.

On the corporate side in India, Tata Motors Ltd. has been discussed as a likely issuer.

"I wouldn't be surprised if they do," the trader said, but "they would have to pay up to do it."

Still, "it would make a lot of sense," he said.

In Indonesia, a reward and punishment system will be enacted this year to force ministry offices to conform to efficiency standards, the Jakarta Post reported.

The BPK, the government's auditing agency, estimates that 51.3 trillion rupiah were inefficiently spent in 2008.

"Starting from 2009, the government will state in its financial report a reward and punishment system, including administrative sanction and follow-up of criminal acts, based on a report from BPK to ministries and government agencies that violate the law," said Harry Azhar Aziz, chairman of the House budget committee.

The Indonesian sovereigns due 2019 were seen at 122 bid, 124 offered.

Also in Pakistan, the bonds due 2017 continued to hold their high levels at 58 bid, 62 offered.

Emerging Europe watches Croatia

In emerging Europe, with trading slow, syndicate sources said there was also little forward progress for the €750 million offering from Croatia, which is still expected this week.

BNP Paribas, Deutsche Bank and Unicredit are bookrunners.

Elsewhere, in Russia, trade with Turkey reached about $35 billion in 2008, prime ministers Vladimir Putin and Recep Tayyip Erdogan announced at a press conference on Saturday.

The two committed to maintain and improve trading ties.

Russia will help Turkey construct its first nuclear power plant, reports said.

The sides also agreed to use local currencies in many of their deals.

LatAm quietly tighter, Brazil whispers

Also, Brazil president Luiz Inacio Lula da Silva is expected to visit Turkey for an economic conference on Thursday.

Meanwhile, another wave of rumors splashed through the market about new 10-year and 30-year sovereigns from Brazil.

"I'm sure there is," something to the rumors, a strategist said, brushing off the idea that the market may be entering into a slowdown around the Memorial Day holiday in the United States.

In Latin American trading, Argentina's 8.28% discount bonds due 2033 inched up by 0.15 point to 37.4 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.