Emerging markets still stronger; Argentina leads trading; Abu Dhabi National Energy talks benchmark

By Aaron Hochman-Zimmerman

New York, July 23 - Emerging markets kept its strong tone in trading as well as its eagerness for new risk in the primary.

Still, "it feels like a squeeze more than anything," a trader said about the market's success, although CDS was tighter again, he said.

In the recently persistent summer primary, Abu Dhabi National Energy Co. was out issuing talk for a three-tranche benchmark dollar deal through Barclays, National Bank of Abu Dhabi and RBS.

Elsewhere in trading, Argentina performed well even as its government went through another changing of the guard as cabinet chief Alberto Fernandez resigned.

The benchmark discount bonds due 2033 added 1.4 points.

In the broader market picture, equities ended the day on the positive side, but volatility still inched up by just 0.13 to end at 21.31, according to the VIX index. The index is an often used gauge of market volatility.

Treasuries took a step back on Wednesday as emerging markets managed to tighten by 5 basis points to a spread of 279 bps, according to JPMorgan's EMBI+ index. The EMBI+ determines the amount of extra yield investors will demand to keep assets in emerging markets debt.

Primary plows ahead

Emerging Europe continued to lead the way in the primary, even as the Asian sector contributed a deal to the pipeline.

"They have been taking advantage of the positive sentiment in the market," a trader said, adding that the new issues have performed well.

"There's been good interest from real money accounts," he said.

The new 9¾% notes from OAO Severstal were tighter by 20 bps, he said.

The bonds were quoted up 0.7 point at 100.7 bid.

Meanwhile, Abu Dhabi National Energy Co., known as Taqa, (Aa2/AA-) released talk for its dollar-denominated benchmark-sized senior unsecured notes.

The five-year notes were talked in the Treasuries plus 325 bps area.

The 10-year notes were talked in the Treasuries plus 325 bps area.

The 30-year notes were talked in the Treasuries plus 340 bps area.

Barclays, National Bank of Abu Dhabi and RBS will act as bookrunners for the deal.

Proceeds from the sale will be used to refinance outstanding debt.

Taqa is an Abu Dhabi-based energy firm.

From Asia, Hong Kong & China Gas Co. Ltd. plans to issue dollar-denominated bonds in one or more tranches.

The proceeds will be used to refinance debt or for general corporate purposes.

The issuer is a Hong Kong-based gas and utility company.

Emerging Europe still charging

Emerging Europe turned in another busy and strong performance on Wednesday in the secondary, a trader said, as he searched for the reason for the success.

"Maybe it is more important than people give it credit for ... Maybe it is the oil," he said about consistently sinking oil prices.

Light sweet crude was seen trading below $125 per barrel.

Meanwhile in Ukraine, the national energy firm Naftogaz Ukrainy traded wildly on unconfirmed rumors that the country may pull its backing of the financially troubled company.

What could be confirmed is that the bonds due 2009 sank as much as 8.5 points to 82.5 bid but settled at 84 bid, a trader said.

"It's been all over the place," he said.

The Ukrainian sovereigns due 2012 were quoted at 94 bid, 96 offered.

Meanwhile, Russia and Ukraine have agreed to a model for the price of gas that will not "shock" the Ukrainian economy, prime minister Yulia Timoshenko said, according to the Itar-Tass News Agency.

Russia will still hold negotiations with its other energy customers Turkmenistan, Kazakhstan and Uzbekistan before a fixed price is determined for Ukraine.

The Russian government bonds due 2030 were spotted at 112 bid, 112.125 offered.

In Turkey, final deliberations of the 11 judges who will determine the fate of the AK Party will begin on July 28, according to the Turkish Daily News.

"From July 28, we will work nonstop every day to reach a verdict," Osman Paksut, acting president of the top court, said in the report.

It is not clear if the deliberations will last more than one day.

Also in Turkey, 20 more people were arrested in connection with the alleged coup plot, reports said.

The new arrests bring the total to 86 detained related to the coup plot suspected of the nationalist Ergenekon group.

The Turkish sovereign bonds due 2030 were seen at 146 bid.

"Hungary also looked strong to me today," the trader said Wednesday.

The five-year CDS was spotted at 112 bps bid.

Slow LatAm tightens

Across the sector, Latin America traded better on a light-volume summer day, a syndicate official said.

Meanwhile in Argentina, governors called for major changes in president Cristina Kirchner's cabinet over their handling of the farm crisis and vote on the tax bill.

After demands for his resignation, even from Peronist governors such as Mario das Neves of Chubut, cabinet chief Alberto Fernandez resigned.

The 8.28% Argentine discount bonds due 2033 jumped 1.4 points to 78 bid.

In Venezuela, on his visit to Russia president Hugo Chavez denied that he may spend $30 billion on Russian military hardware over the next four years, according to reports.

"This is an absurd figure. I'm not going to spread such fantastical ideas," he told reporters, according to Itar-Tass.

Other reports held that Venezuela will only spend $5 billion on Russian arms.

"That's Chavez's style," a syndicate official said about the rumors of big defense spending.

"It's all talk though," he said.

Chavez also traveled to Belarus to meet president Alexander Lukashenko in order to discuss greater cooperation between the two countries.

The 9¼% Venezuelan sovereigns due 2027 slipped 0.55 point to 91.65 bid.

Also in Latin America, Brazil's highly traded 11% bonds due 2040 were quoted at 131.35 bid.

Asia trades stronger

Asia continued to tighten as the overall market tone continued, helped by moderately strong equities and still falling oil prices.

In the Philippines, the automotive sector will meet its goals in the foreseeable future, according to the Chamber of Automotive Manufacturers of the Philippines Inc.

Philippine automakers have been focusing on high-efficiency vehicles, which have become increasingly popular as gas prices remain elevated even as oil has eased off of its highs, the Manila Times report said.

"The impact is not just felt in the Philippines. It is a global phenomenon," said Campi's president, Elizabeth Lee, in the report.

In Indonesia, the state's energy firm PT Pertamina will begin to import 60% more fuel than its current level in order to ease the burden on the Cilacap refinery in Central Java, which is undergoing maintenance.

"We will overhaul our refinery in Cilacap in August and this will halt its production for about one month," said the director for marketing, Ahmad Faisal, according to the Jakarta Post.

The facility typically refines 350,000 barrels per day with 60% going to fuels and the remainder used for asphalt and lubricants.

"We will evaluate the future of our asphalt production. If we see that fuels bring us more profit we will increase their production and import tin. Our target is maximizing profits," Faisal said in the report.

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