Emerging markets slip softly; light trading on London's bank holiday; Korail roadshows $300 million

By Aaron Hochman-Zimmerman

New York, May 5 - Prices in emerging markets slid lower, but spreads came in slightly as the market traded on paper thin volumes.

As strikes seemed again imminent, Argentina led the way down in the secondary but only lost 0.5 point from its benchmark discount bonds due 2033.

The sentiment carried over from Friday was "definitely a bit consolidative at the moment," a trader said.

"The turnaround in stocks on Friday brought out some profit-takers," he said.

In the primary, the pipeline offered no completed deals, but Korea Railroad (Korail) took its $300 million offering on the road as the market expects to hear more from emerging European banks in the coming days.

Also, as equities struggled, volatility was up to end higher by 0.72 at 18.90, according to the VIX index. The index is a standard measure of market volatility.

With only slight movement in Treasuries, emerging markets tightened by 2 basis points to a spread of 251 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.

Slow LatAm slips on oil, unrest

"There's not a whole lot going on" in Latin America, said Enrique Alvarez, a Latin America debt strategist at think tank IDEAglobal, as equities were weak and London's closed markets provided no early leadership.

Latin American trading found itself somewhere between "equity weakness and the overall strength of the emerging market category," he said.

A positive tone could also be found in the lack of disappointments from a recent rash of economic data from the United States, he said.

However, in Bolivia "there's a lot of stress and a lot of tension" over a referendum vote for autonomy in the prosperous and resource-rich region of Santa Cruz, he said, as some violence broke out on Monday.

"This illegal and unconstitutional vote didn't have the success hoped for by certain families," president Evo Morales said, referring to landowners from Santa Cruz who helped organized the poll, the BBC reported.

"It will be difficult to see" how the vote will play out for the rest of the country, Alvarez said.

Elsewhere, even as oil prices were climbing Venezuela's 9¼% sovereigns due 2027 dropped by 0.4 point to 91.75 bid, 92.5 offered.

Light sweet crude was seen trading at more than $120 per barrel on Monday.

Also, Brazil's 7 1/8% bonds due 2037 also fell by 0.4 point to 115.5 bid, 116.25 offered.

Farmers delay strike; low hopes for talks

In Argentina, farmers pushed back the strike resumption from last Friday to Wednesday but are still skeptical that negotiations with cabinet chief Alberto Fernandez will produce positive results, and the road blockades may resume on Wednesday, the Buenos Aires Herald reported.

However, a local gazette printed a government decree that eases some of the beef exporting, Alvarez said, and may indicate the government is "angling for some sort of compromise."

The farmers say they do not intend to create food shortages, but "there's going to be a lot of stress," Alvarez said, adding that the use of the military to clear blockades has been discussed.

The 8.28% Argentine discount bonds due 2033 were lower by 0.5 point at 80.5 bid, 81.6 offered.

Asia 'really thin'

Asian trading was caught between a market closing in London and flat Treasuries, which left the market completely dead and "really thin," according to a trader.

The little action in the market largely came from sellers who looked to consolidate gains made during the rally days, which ended last week, the trader said.

In the Philippines, the government was unable to boost its reserve of rice when no eligible sellers bid for the contract, the BBC reported.

One of Vietnam's food suppliers offered a bid but did not have the proper documents, the report said.

The contract offered PHP 32.2 billion for 675,000 tons of rice.

The Philippine government bonds due 2030 fell 0.375 point to 131.5 bid, 132 offered.

Elsewhere, India said it may halt the trading of all food futures.

The country has already banned the trading of futures in wheat, rice and lentils, the report said.

Indonesia is expected to shore up its budget by increasing fuel prices by up to 30%, according to the Jakarta Post.

Some expect protests to follow the cutting of energy subsidies, but president Susilo Bambang Yudhoyono said the only thing left to determine is when and how much prices will be increased.

The higher prices will also likely lead to further inflation of the rupiah, which is already a problem for the economy.

The rupiah was seen trading at 9,202.69 to the dollar.

The Indonesian sovereign bonds due 2017 were lower by 0.5 point to 102 bid, 102.5 offered.

"We're going to see some weakness in Indonesia ahead of the deal," the trader said about the expected benchmark sovereign issue.

Pakistan's sovereign bonds due 2017 were quoted at 84 bid, 87 offered.

Korail markets $300 million

In the primary, Korea Railroad (A2/A) will be on the road with its proposed $300 million five-year senior unsecured bonds until Wednesday, according to a market source.

The roadshow was in Hong Kong and Singapore on Monday and will be held on Tuesday in London and on Wednesday in New York.

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

There is a change-of-control put at par if the government ceases to own and control more than 51% of Korail stock.

Korail is a Daejong, South Korea-based government railroad operator.

"There just hasn't been the supply," a trader said about the tempered action in the primary.

The big benchmark issues it takes to spur the supply have not come for the Asian sector.

"There's not particularly been straight-forward names," he saidm making a slight excuse for Korail, "just peripheral types."

Indonesia's Truba Alam finished a roadshow for a three-year offering on Friday.

Emerging Europe silent

The May Day market holiday in the United Kingdom kept trading under wraps, but in Turkey the government issued a series of four-year budget goals as well as giving the impression that interest rates may soon increase, the Turkish Daily News reported.

By 2012 the government hopes to cut public debt to 30% from 38.8%, make privatization revenues 0.2% of the GDP, make the ratio of budget deficit to GDP 1.6% and increase privatization of the energy sector.

The lira was seen trading at 1.959 to the dollar.

Economy minister Mehmet Simsek also said that the government will also spend 17 billion lira over the next five years on a series of hydroelectric dams and irrigation systems, which is expected to double or triple farm production, he said in the report.

The Turkish sovereigns due 2030 were unchanged at 153.875 bid, 154.375 offered.

Abkhazian rebels claim two surface-to-air kills

Georgia's government denies the claim that separatists in the breakaway Abkhazia region shot down two unmanned Georgian air force drones.

Georgia's air force also denies it had any aircraft operating in the region during the time of the alleged action.

Tensions with Russia have been building since the Georgians accuse the Russian air force of downing a drone over Abkhazia on April 20. The drone's camera recorded footage that seems to show a MiG-29 firing on it. The Russians denied the Georgian account saying the unmanned plane was shot down by Abkhazian forces.

Since April 20, both sides have increased their military presence around Abkhazia.

Also in Russia, military hardware including mobile intercontinental ballistic missile launchers will be on parade in Moscow during Friday's Victory Day parade, which celebrates the Russian victory in World War II.

President Vladimir Putin, who stepped down from his office on Wednesday, ordered the show of force for the first time since the last Soviet parade in 1991.

Putin denied the parade is intended to intimidate other countries, but is to demonstrate Russia's ability to protect its own citizens.

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