Emerging markets mixed to stronger; RasGas, Ecopetrol expected; spreads wider on Treasuries

By Aaron Hochman-Zimmerman

New York, July 10 - Emerging markets were pulled wider by falling U.S. Treasuries, but credit levels were frequently better.

Argentina jumped by 2 points in trading and led most of Latin America higher.

Wider spreads did not phase Asia, which adjusted well to the new supply that has entered the space over the week.

New paper from Poland and Peru also performed well as new offerings from Qatar's RasGas and Colombia's Ecopetrol SA looked to price in the week ahead.

Volatility peaked early in the day and trailed off to end lower by 0.76 at 29.02, according to the VIX index. The index is an often used gauge of market volatility.

Treasury yields sank again as emerging markets widened by 14 basis points to a spread of 453 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.

Primary has gas left

RasGas plans to offer a dollar-denominated benchmark-sized bond in three-, five- and 10-year tranches, according to a market source.

Citigroup, Credit Suisse and HSBC will act as bookrunners for the issue.

The issue is expected during the week of July 13.

RasGas is a Doha, Qatar-based energy firm specializing in liquefied natural gas.

In Latin America, Ecopetrol will offer dollar-denominated benchmark-sized bonds.

Proceeds will be used to fund the company´s investment plan.

Ecopetrol is a Bogota-based energy firm.

"It's not a PDVSA, so it should go somewhat smoothly," said Enrique Alvarez, a Latin America debt strategist at think tank IDEAglobal.

Still, the news of more supply pushed Colombia's sovereigns "off a touch," he said, which made them an underperformer.

The 8 1/8% bonds due 2024 were lower by ¼ point to 108 bid.

LatAm surprisingly strong

Latin America was "more intriguing that exciting" on Friday, Alvarez said.

"There is a plentiful manifestation of risk aversion or lack of confidence in a global recovery," he said, but "that is not getting an outright response in the debt market in Latin America."

Spreads were widening based on U.S. Treasury action, but levels were hardly damaged by weak developed markets.

In Argentina, bonds "have actually come back somewhat today," he said.

There has been some back and forth and "cat and mouse" in the country politically, but investors thinking "more strategically" realized the government will "have to make a play with the bond holdouts," he said.

"That is sustaining the paper."

The 8.28% Argentine discount bonds due 2033 jumped 2 points to 51½ bid, 52¾ offered.

Peru was also seen "hanging in there," he said, after its $1 billion reopening of the 7.35% bonds due 2025 on Tuesday.

The bonds were up just 1/8 point to trade at 105.2 bid, 105.7 offered.

In Venezuela, the bonds were weaker but were "not losing a whole lot," he said.

The 9¼% Venezuelan sovereigns due 2027 slipped ½ point to 66½ bid, 67½ offered.

Also in the category, Brazil's bonds were wider, but the 7 1/8% government bonds due 2019 added ¾ point to 101 bid, 102¼ offered.

Asia pulled wider

Asia widened with rising Treasuries amid slow trading on Friday.

Meanwhile, encouraging numbers came from the Philippines where foreign direct investment inflows for April 2009 hit $601 million, "nearly three times the level realized in the same month last year," according to central bank governor Amando Tetangco.

Year to date, inflows total $648 million or a jump of 29.1% over the same period of 2008.

Also, foreign equity capital placement reached $619 million. Most of the amount is attributed to the purchase of a block of shares in a local beverage manufacturer.

In Indonesia, bank lending rose in May to $762.95 million from April's figure, the central bank reported, according to the Jakarta Post.

Of loans outstanding 1.09 quadrillion rupiah were denominated in the local currency, while 213.55 trillion were denominated in foreign currency.

The central bank still maintains its prediction of 4% economic growth in 2009.

Emerging Europe on the range

Emerging Europe was "range-bound" on "scrappy flows" as the week came to an end on Friday, a trader said.

Poland's new 6 3/8% bonds traded well, up to 102 bid from pricing at 99.788 on Tuesday.

There were also vague rumors of a new deal from Russia's OAO Gazprom, he said.

In Russia, bonds widened slightly as finance minister Alexei Kudrin said that the government will sell bonds worth 150 billion rubles in 2009 and 310 billion rubles in 2010, reports said.

The ruble was seen trading at 32.738 to the dollar.

The Russian sovereign bonds due 2030 fell ¼ point to 97½ bid, 97 5/8 offered.

The Gazrprom bonds due 2034 were quoted at 97 bid, 98 offered.

In Ukraine, the chief of the International Monetary Fund's mission to Kiev, Ceyla Pazarbasioglu, will recommend continuing with a planned $3.3 billion loan, reports said.

Ukraine has been under review to determine if the country's progress out of economic crisis is a worthy investment for the IMF.

In Turkey, the government bonds due 2030 were better by ¼ point to 151½ bid, 153 offered.

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