Emerging markets climb higher; Argentina bonds lead rally; TMK prices $400 million three-year notes

By Aaron Hochman-Zimmerman

New York, July 18 - Emerging markets ended a strong week with another strong day on Friday.

Even with a mixed day in stocks, credit took up the reins on its own and charged ahead as issues across every sector traded tighter.

Still seeing benefits from the Senate defeat of the farm tax bill, Argentina led the advance in the secondary by adding 2.25 points to its benchmark discount bonds due 2033.

The improved tone in the primary culminated with the pricing of a $400 million offering of three-year notes from Russia's OAO TMK with a yield of 10%.

However, an emerging markets strategist predicted that the market will see only a small primary window with "very little issuance once July is over with," he said.

"There's still over $70 billion of issuance waiting to hit the market after August and it's not going to be looked upon very favorably," he said.

"After mid-August we'll probably see another bout of volatility," he said.

In the meantime, equities finished mixed, but volatility still shed 0.96 to 24.05, according to the VIX index. The index is a frequently used measure of market volatility.

Treasuries retreated again, which allowed emerging markets to tighten by 7 basis points to a spread of 281 bps. The EMBI+ calculates the amount of extra yield investors will demand to hold assets in emerging markets debt.

The EMBI global diversified index, which represents sovereigns and quasi-sovereigns, was tighter by 7 bps with a spread of 310 bps.

The diversified index has a less strict liquidity rule for inclusion.

Emerging Europe holds rally

Credit turned in a strong performance in emerging Europe on Friday without the help of U.S. equities, which traded flat as London closed and traders looked ahead to the weekend.

"It's decoupled from everything," a trader said, adding that the tightening market "is definitely more positive" than previous days, which "had a little bit in both directions."

Turkey's bonds continued to rise despite the country's ongoing political fight.

The bonds due 2030 were seen at 145 bid, 145.5 offered.

Meanwhile in Russia, president Dmitry Medvedev approved a law that allows the government to allot what it considers strategic off-shore oil and gas fields to companies without the auction process, according to the president's official web site.

"Medvedev explained that instead of the usual tenders and auctions, the law allows the government to make specific individual decisions on the provision and use of sections of the continental shelf for mineral resource exploration and exploitation purposes," the site said.

The Russian government bonds due 2030 were quoted at 112.5 bid, 112.625 offered.

Also in corporates, the Russian migration service issued a new 10-day visa to Robert Dudley, president of TNK-BP.

The service intends the pass to be used for the company to work out its internal issues, the Itar-Tass News Agency reported.

A longer-term visa cannot be issued until a work contract has been submitted, the service said.

TMK prices $400 million

Also in Russian corporates OAO TMK (Ba3/BB-/) broke through the stagnation in the primary and took advantage of the rally to price $400 million three-year senior loan participation notes at par with a coupon of 10%.

The notes came at the tight end of the talk in the 10¼% area.

ABN Amro, Barclays and ING acted as bookrunners for the deal.

The notes will be paid as a bullet.

TMK is a Moscow-based pipeline materials manufacturer.

The bonds traded "up and down from 101 [bid]," a trader said.

"There was a lot of interest ... strong bids came in," he said.

The bonds were last seen at 100.5 bid, 100.75 offered.

Also from the Commonwealth of Independent States, Georgia's Bank of Georgia (B3/B+/B+) announced a $30 million reopening of its loan pass through notes due 2010.

The additional $30 million brings the total amount of the notes to $140 million.

JPMorgan acted as bookrunner for the issue.

The notes are putable in one year.

The bank is a Tbilisi, Georgia-based commercial and retail bank.

"I am very pleased that we have successfully built on the initial transaction with JPMorgan by increasing the issue of our debut loan pass through notes completed only a month ago," said Nicholas Enukidze, chairman of the bank's supervisory board, in a statement.

"This transaction demonstrates the continuous interest of debt investors in Bank of Georgia," he said.

LatAm high-betas wrap tighter

The high-beta credits in Latin America traded tighter on a rally that ended the week without much assistance from the U.S. markets.

In Venezuela, president Hugo Chavez is scheduled to meet with Russian political, financial and military figures during a trip beginning July 21, according to the RIA Novosti News Agency.

His official trip will also include stops in Bolivia, Nicaragua, Belarus, Spain and Portugal.

Chavez plans to strengthen ties with Russia in the oil production and banking sectors as well as discuss the purchase of military hardware, including helicopters.

The 9¼% Venezuelan bonds due 2027 tacked on 0.65 point to 92.5 bid, 93.5 offered.

Meanwhile in Mexico, the central bank raised its interest rate by 25 bps to 8% on Friday, according to a release from the bank.

The increase was intended to help stifle inflation.

The peso was seen stronger, trading at 10.171 to the dollar.

The Mexican 5 5/8% bonds due 2017 slipped to 100.5 bid, 100.7 offered.

Argentina keeps rolling

In Argentina, the bonds continued to take advantage of improved confidence after the Senate rejected the government's farm tax bill with the tie-breaking vote from vice president Julio Cobos.

"It was good to have that repealed," a strategist said.

"The rally will likely continue through mid-August," he said, adding that the slow summer period will introduce very few game-changing scenarios to the market.

"Argentina is going to be an outperformer through then," he said.

The 8.28% Argentine discount bonds due 2033 leapt by 2.25 points to 75.75 bid, 76.75 offered.

Asia stronger

Asian trading improved to end the week on Friday as the tone improved and investors were willing to put more risk out on the table.

In the Philippines, the government will likely shy away from more commercial borrowing in the second half, the Bureau of Treasury said, according to the Manila Times.

The government was expected by some to pursue up to $500 million to $750 million in foreign borrowing in the remainder of 2008.

Lower revenue collection and lower spending was blamed for the decision to forego the borrowing, the report said.

The Philippine sovereign bonds due 2030 added 0.375 point to 123.625 bid, 124.125 offered.

Elsewhere in Indonesia, 55% of Asian-based investors surveyed by ING felt that the stock market will continue to sink at the hands of rising inflation through the second half, the Jakarta Post reported.

The survey polled more than 1,300 investors from countries around Asia, excluding Japan.

On Thursday, the Indonesian stock exchange was lower by 23.4% from its high on Jan. 9.

The rupiah was weaker, trading at 9,145.90 to the dollar.

The Indonesian sovereign bonds due 2017 took on another 0.25 point to 97 bid, 97.75 offered.

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