Emerging markets close mixed; Turkey, Ecuador recover; Rumbles heard from quiet primary market

By Aaron Hochman-Zimmerman

New York, July 9 - Emerging markets ended mixed on Wednesday but far outpaced U.S. equities, which were slammed late in the afternoon.

Trading has moved laterally, and the primary has been stagnant as financials' struggles persist and as the summer takes full hold of the market.

"I don't see much on the way of good news," a trader said about the near future.

In trading on Wednesday, politically embattled Turkey and Ecuador both found opportunistic buyers, which helped recover some losses from their benchmark bonds.

Even on a day in which an attack left six dead outside the U.S. consulate, Turkey led the winners by adding 2 points to its bonds due 2030.

Elsewhere, the primary heard rumors of deals from China's City Telecom and from Lebanon, but few details were available as volatility continues to tamp down new issues.

Meanwhile, volatility made a steady climb throughout the session to end up by 2.08 at 25.23, according to the VIX index. The index is a frequently used yardstick of market volatility.

As Treasury yields slumped, emerging markets tightened by 4 basis points to a spread of 303 bps, according to JPMorgan's EMBI+ index. The EMBI+ estimates the amount of extra yield investors will demand to hold assets in emerging markets debt.

Emerging Europe mixed, Turkey stronger

Trading in emerging Europe has "been a bit mixed," a trader said, although "it seemed quite decent in the morning."

Turkey was stretched out to 339 bps from an open at 320 bps to settle near 313 bps after three policemen and three unidentified gunmen were killed in Istanbul in what the U.S. ambassador to Turkey, Ross Wilson, called "an obvious act of terrorism."

Later in the day, some reports began to make connections to Al Qaida, but no group claimed responsibility for the attack and no motive has been established.

The killings also served to add to a backdrop of increasing political risk in the country.

The ruling AK Party is still fighting charges in court that it is anti-secular and its actions have been unconstitutional.

Meanwhile, arrests have been made in what is considered by some a coup plot and considered by others politically motivated detentions by the AKP to smear the reputation of the army.

Despite the news, the Turkish government bonds due 2030 rallied by 2 points to 142.75 bid.

In Russia, a think tank suggested that Russia use economic and political leverage to deter and punish European countries that sign missile defense treaties with the United States, the RIA Novosti News Agency reported.

The statements from Col. Gen. Leonid Ivashov, the head of the Moscow-based Academy of Geopolitical Sciences, came after the Czech Republic ratified a treaty that will allow the United States to place a missile defense radar station in the Czech Republic.

The United States is also in talks with Poland to arrange for the placement of surface-to-air interceptor missiles, which will be linked to the Czech-based radar systems.

The Russian sovereign bonds due 2030 improved by 0.45 point to 112.75 bid.

LatAm slow, mixed

Latin America traded slower on Independence Day in Argentina.

Still, "stuff has really sold off in the past few days," a strategist said. "Argentina has been performing poorly."

The 8.28% Argentine discount bonds due 2033 dropped 0.5 point to 74.5 bid.

Brazil's beef sector has suffered as well, the strategist said.

The Arantes 10¼% bonds due 2013 was quoted at 92 with no bid on Wednesday as "the deal is weighing on the whole sector," the strategist said. "People don't like to be taken for fools."

"You can get much better beef names for a much better yield," the strategist added.

Independencia's 9 7/8% bonds due 2015 were quoted at 95.5 bid, 96.5 offered.

Elsewhere, Brazil's 11% sovereign bonds due 2040 lost 1 point to 131.95 bid.

Also in Venezuela, oil traded up from recent lows above $135 per barrel.

Still, "unless the movements in oil are drastic there's not a direct impact on Venezuela right now," a syndicate official said. "They're budgeting $100 oil."

The Venezuelan 9¼% bonds due 2027 lost 0.5 point to 93.25 bid, 94 offered.

Ecuador sees bounce

In Ecuador, prices have "bounced back," a trader said, as new finance minister Wilma Salgado reassured investors that debts will be honored.

Tuesday, everyone was worried that she is leftwing, a syndicate desk official said.

Meanwhile, president Rafael Correa denied that the seizing of media outlets and other businesses was an assault on freedom of speech.

The government claims its actions were solely intended to recover debts owed by the Isaias Group which held the now collapsed Filanbanco.

"He thinks he's Chavez," the syndicate official said about Correa.

The 9 3/8% Ecuadorian sovereign bonds due 2015 added 0.5 point to 99.5 bid, 101 offered.

Asia loses early rally

Asian trading was firm on a "pretty strong short covering rally," which lasted through the end of Asia's overnight to New York's morning, a trader said.

The weakness from the financials in the United States spelled the end of the rally for Asian credit, he said.

Meanwhile in Indonesia, the central bank announced that the inflation rate of 11% may have hit the outer reaches and will drop back to 6.5% to 7.5% in second half of 2008, according to the Jakarta Post.

"That was adding to the strength in Indonesia," he said.

The recent 30% jump in energy costs fueled the rise of inflation to its two-year high in June, the report said.

The bank said it will remain flexible and cautious as it guides inflation down to 6.5% to 7.5%.

The rupiah was seen trading at 9,162.22 to the dollar.

The Indonesian government bonds due 2017 were seen at 95.25 bid, 95.75 offered.

Elsewhere in the Philippines, by the end of May, foreign currency deposit unit (FCDU) deposit liabilities were up from the end of April by $72 million to $19.3 billion, according to the central bank.

The figure is 5.6% higher than at the same point in 2007.

The Philippine sovereign bonds due 2030 were quoted at 121.5 bid.

Primary in vacation season

Many market watchers are predicting a primary slowdown at least through the end of August, saying: "Now we're going to get into summer and people are going to throw up their hands and try to take a vacation," a strategist said.

Still issuers such as Brazil's Camil Alimentos are waiting for a break in the storm to price $150 million.

China's City Telecom announced a tender offer for $90 million of its 8¾% senior notes due 2015.

The telecom plans on a new debt issuance to support the offer, if the market supports it, a trader said, although "it doesn't look like it will."

Also, Brazil's Unidas SA (A, local) announced plans to issue a 250 real four-year debenture.

Banco Itau, UBS, ABC Brasil, Banif Investimentos and HSBC will act as bookrunners for the deal.

Unidas is a Amadora, Brazil-based auto rental company.

Meanwhile, on the sovereign side, talk of a $400 million issue from Lebanon hit the market, a syndicate official said.

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