Emerging markets hold still; Korea Gas prices $500 million bonds; Asia handles more supply

By Aaron Hochman-Zimmerman

New York, July 9 - Emerging markets tightened to Treasuries but saw little movement on their own accord on Thursday.

"Even the EMBI is flat, [which] just tells you EM investors at least [are] not buying into the sell-off," a strategist said.

Cash levels were stable, even in Asia where Korea Gas Corp. poured $500 million more of supply into the category.

Traders did not seem to flinch while the Export-Import Bank of Korea bonds held on to trade at 365 basis points bid.

From the major markets, volatility stepped back below 30.00 as it dropped 1.52 to close the day at 29.78, according to the VIX index. The index is a common measure of market volatility.

On a Treasury drop, emerging markets tightened by 10 bps to a spread of 445 bps, according to JPMorgan's EMBI+ index. The EMBI+ calculates the amount of extra yield investors will demand to hold assets in emerging market debt.

The EMBI global diversified index, which represents sovereigns and quasi-sovereigns, was tighter by 9 bps with a spread of 452 bps.

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

Korea Gas prices $500 million

The primary continued to roll along as Korea Gas priced $500 million five-year bonds (A2/A/) at Treasuries plus 390 bps.

The bonds priced tighter than talk of Treasuries plus 400 bps to 420 bps. The issue priced at 99.165 with a coupon of 6% to yield 6.197%.

Merrill Lynch, Deutsche Bank and JPMorgan acted as bookrunners for the deal.

A roadshow began on Monday in Los Angeles and Singapore, traveled to Hong Kong and New York on Tuesday and concluded in Boston and London on Wednesday.

Proceeds will be used for general corporate purposes.

Korea Gas is a Bundang, South Korea-based energy firm.

The category seemed to digest the new supply without much heartburn.

The new 7 5/8% bonds from Kexim were just wider by about 3 bps on "all Treasury moves," a strategist said.

The Seoul-based lender priced $1.5 billion of the notes on Tuesday.

The bonds were spotted at 365 bps bid.

That was marginally wider than their spread at pricing of 362.5 bps although somewhat wider than the tight print of 350 bps in Wednesday's session.

Also in Asia, Sri Lanka announced that it will hold a roadshow on July 17 on the U.S. West Coast, on July 20 in New York and on July 21 in Boston.

Asia trades up

In the rest of the category bonds were slightly improved with much of the rest of the market.

In the Philippines, the central bank lowered the key interest rates by 25 bps, according to a bank statement.

The overnight borrowing rate was cut to 4%, and the overnight lending rate was cut to 6%.

Recent returns of positive inflation numbers allowed for the lower rates, which will still keep inflation within its 2009-2010 target, the bank said.

"Given prevailing downside pressures on prices and output due to the impact of weaker global economic activity on domestic demand, the reduction in policy rates will support economic activity as banks are expected to pass on the lower borrowing costs to clients," the statement said.

The peso was seen trading at 48.145 to the dollar.

On a feeling of post-election stability, Indonesia's bonds due 2019 were better by 3 points at 130 bid, 131 offered.

Emerging Europe flat

Emerging Europe was slow for most of London's morning hours, but "a flurry of activity" riled the desks in the afternoon, a trader said.

Even with the "flurry," most issues finished flat.

In the sector's primary, some investors waited on a CHF 150 million offering from Russia's VTB Capital, which had been expected earlier in the week.

The two-year bonds from BNP Paribas and VTB Capital should price "any minute now," a strategist said after the close in New York.

The bonds were talked at a 7½% coupon and a spread of mid-swaps plus 675 bps.

In Turkey, industrial production dropped at a slower rate for the third consecutive month in May, the Hurriyet Daily News reported.

Output sank 17.4% from May 2008; however, April's number was 18.5% lower than its 2008 equivalent.

The Turkish government bonds due 2030 slipped ¾ point to 151¼ bid, 152¾ offered.

Also in emerging Europe, Bosnia and Herzegovina were granted a SDR 1.01 billion standby loan by the International Monetary Fund, the Washington, D.C.-based lender said in a statement.

The Balkan nation will have SDR 182.63 million immediately available.

The purpose of the loan is to reinforce the country's growth amid the economic crisis.

Still, Bosnia's "robust growth has been increasingly accompanied by macroeconomic imbalances, as rapid credit expansion, funded by large capital inflows, drove domestic demand past sustainable levels," the IMF statement said.

"Against this background, the corrective policies adopted by the authorities, along with international financial support, will contribute to realizing an orderly adjustment," the statement continued.

Meanwhile, Russia's bonds due 2030 were spotted up ¼ point to 97¾ bid, 98½ offered.

LatAm treads lightly

Latin America saw some tightening on the back of U.S. Treasuries, but "when I go to the trading desks it's very quiet," a strategist said, but "bonds are up."

Argentina's bonds have slipped from their recent rally.

"Argentina was a little overpriced," the strategist said, but "clients have said they've been hoping for a sell-off" in order to buy cheaper.

In Argentina, despite "a lot of pressure" from business interests, domestic trade secretary Guillermo Moreno said he will keep the post assigned to him by president Cristina Kirchner, according to the Buenos Aires Herald.

The 8.28% Argentine discount bonds due 2033 managed to add ½ point to 51 bid, 52½ offered.

"Venezuela was flat," he said.

The 9¼% Venezuela sovereign bonds due 2027 were seen at 67¼ bid, 68¾ offered.

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