Emerging markets tighter on Treasuries; Argentina bounces; Local deals stack up in primary

By Aaron Hochman-Zimmerman

New York, May 13 - Most of emerging markets held still in price terms, but Treasury losses gave spreads a big chance to wind in.

The price movers were the usual suspects, Venezuela and Argentina, which managed to move in opposite directions on Tuesday.

Argentina added 2.9 points to its discount bonds due 2033, while Venezuela fell 1.625 points as the government nationalized steelmaker Sidor.

In the primary, no deals were ready to price, but corporate issuers moved closer to the end of the pipeline.

Brazil's Banco Panamericano released talk in the 7¼% area for its $120 million two-year eurobond.

Market watchers also kept their gaze on the horizon for expected issues from Indonesia and the Philippines.

Equities offered up a mixed session, but volatility was only up 0.19 to end at 17.98, according to the VIX index. The index is a common gauge of market volatility.

With a bad day for Treasuries, emerging markets wound in by 12 basis points to a spread of 255 bps, according to the JPMorgan EMBI+ index. The EMBI+ determines the amount of extra yield investors will demand to hold assets in emerging markets debt.

Argentina up, Venezuela down in LatAm

"Argy and Vene are the only things that are moving," a buysider said about the emerging markets.

However, the two highly volatile credits were moving in opposite directions.

In Argentina, the farmers' strike continued with no progress on either side, but the 8.28% discount bonds due 2033 managed a gain of 2.9 points to 82.15 bid, 83 offered.

In Venezuela, the nation's largest steel producer, Sidor, was nationalized by decree of president Hugo Chavez.

Mining and basic industries minister Rodolfo Sanz will assume control of the company owned by Luxembourg's Ternium SA before June 30.

The retreating 9¼% Venezuelan sovereigns due 2027 lost 1.625 points to 86.75 bid.

In Brazil, investors waited to hear more about the country's proposed sovereign wealth fund from finance minister Guido Mantega.

The fund is expected to handle $20 billion in assets.

"I think it's all negative for the real," a buysider said.

The real was seen trading at 1.664 to the dollar.

Meanwhile in Bolivia, president Evo Morales will face a recall vote on Aug. 10 as some of the resource-rich eastern regions clamor for greater autonomy, the Buenos Aires Herald reported.

The relatively wealthy Santa Cruz region voted for secession in a non-binding referendum on May 4.

Emerging Europe, Ukraine strong

"All's strong here," said a busy trader of emerging European credit at the end of the session.

Volumes were up and spreads were in as investors were ready to put risk on the table.

In Ukraine, president Viktor Yushchenko's allies in parliament blockaded the podium and refused to allow him to give his annual address to parliament.

The members of prime minister Yulia Timoshenko's bloc helped bring Yushchenko to power during the 2004 Orange Revolution; however, the sides now disagree about how to handle the country's growing inflation problem.

Yushchenko called the action of the ministers "unprecedented," but Timoshenko accused the president of "sabotaging" the cabinet's efforts.

Timoshenko is favored in polls, but some believe the infighting may work to the advantage of nationalist opposition leader Viktor Yanukovich.

The hryvna was seen trading at 4.775 to the dollar.

The Ukrainian government bonds due 2016 were unchanged at 98.75 bid, 99.25 offered.

Meanwhile in Russia, the private oil firm OAO Rosneft is under investigation for price fixing in Siberia by the Russian Federal Anti-Monopoly Service (FAS), according to the RIA Novosti News Agency.

The government accused Rosneft of using its dominant market position to improperly influence prices, but Rosneft insisted it controls less than 40% of the market and its prices are the lowest in the region, the report said.

The Russian sovereign bonds due 2030 slipped 0.1 point to 115.55 bid, 115.70 offered.

Asia OK but untested

Asia traded with "average" volumes, but "the market's doing OK," a trader said.

"We're not getting the supply the IG market is getting and the emerging European market is getting," he said.

"The market's not getting tested and it's forcing the real money guys back into the secondary," he said.

In the Philippines, finance secretary Margarito Teves confirmed that the country will begin to seek more financing from overseas, according to the Manila Times.

The government plans to increase its foreign borrowing to 35% from 25% of its total borrowing.

Inflation was a major factor weighing on the decision, said undersecretary of finance Roberto Tan.

The interest in foreign borrowing led a market source to believe that a dollar-denominated issue may follow.

The peso was seen trading at 42.78 to the dollar.

The Philippine government bonds due 2030 were unchanged at 130.5 bid, 131 offered.

In Indonesia, students marched against the government's proposed fuel price hikes on Monday, the Jakarta Post reported.

The students protested at the gates of the presidential palace, but president Susilo Bambang Yudhoyono was at Airlangga University Surabaya, East Java, in honor of National Education Day.

"Raising fuel prices means the government of SBY-JK is breaking its own promise to bring prosperity to the country. We demand they step down if they go ahead with their plan," said a protestor.

The Indonesian government bonds due 2017 were also unchanged at 101.25 bid, 101.75 offered.

The split of the coalition in Pakistan has not seemed to affect spreads, but "bonds continue to get marked lower," the trader said.

The Pakistani bonds due 2017 were spotted at 83 bid, 86 offered.

New deals emerging

Corporates and semi-sovereign issuers kept the pipeline flowing in the primary on Tuesday.

Many expect Brazil's Banco BMG to price its $150 million three-year bonds by the end of the week, but meanwhile Brazil's Banco Panamericano (Ba2) released talk in the 7¼% area for its $120 million two-year eurobond.

Banco Votorantim, Banco Espirito Santo and Unibanco will act as bookrunners for the Regulation S-only deal.

Investor meetings will be held in New York on May 19 and May 20.

Banco Panamericano is a Sao Paulo-based retail and commercial bank.

Elsewhere, OJSC Russian Agricultural Bank (A3/BBB+) has mandated ABN Amro, Citigroup and Goldman Sachs to market a possible dollar-denominated issue.

The roadshow will be held in Los Angeles and Singapore on May 15, in Boston and Hong Kong on May 16, in New York and London on May 19 and in London and Frankfurt on May 20.

The Russian Agricultural Bank is a government-owned Moscow-based lender focused on the agriculture sector.

Argentina's Industrias Metalurgicas Pescarmona SA (Impsa) will hold a roadshow for a $40 million bond beginning on May 13.

The bonds have been talked at 11%.

BCP Securities will act as the bookrunner for the transaction.

The roadshow will be held in Geneva on May 13 and May 14, in New York on May 19 and May 20 and in London on May 21 through May 23.

Impsa is a Mendoza, Argentina-based wind energy and hydropower producer.

The Impsa 11¼% notes due 2014 were seen trading at 91.5 bid, 93.5 offered.

Local-currency offers step out

In local currencies, Germany's KfW Bankengruppe (Aaa/AAA/AAA) issued talk of 11 7/8% to 12% for its real-denominated two-year senior bonds.

The deal is expected during the week of May 12.

Standard Bank will act as bookrunner for the deal.

KfW is a Frankfurt-based state-owned lender.

Also, Indonesia's PT Danareska (A/A-, local) announced a 500 million rupiah issue.

A 200 million rupiah tranche will have a maturity of two years. A 100 million rupiah tranche will have a maturity of three years. And a 200 million rupiah tranche will have a maturity of five years.

PT Danareksa Sekuritas, PT Bahana Securities and PT Mandiri Sekuritas will act as bookrunners for the deal.

About 80% of the proceeds will be used to refinance existing debt, while 20% will be used for working capital.

PT Danareska is a state-owned investment company.

"The market seems to be stabilizing in the Indonesian local markets, so that's putting a little bit of confidence in," a trader said.

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