Emerging markets close quietly; primary pipeline runs dry; secondary spreads move in slightly

By Aaron Hochman-Zimmerman

New York, June 26 - Emerging markets seemed to have closed the week sometime on Thursday based on Friday's trickling flows.

Still, by the end of the generally quiet week, the sentiment had gradually improved to positive.

On Friday, some spreads inched in, but the silent desks actually made the loudest noise.

"It's just dead; I've got nothing," a trader said.

During the week, the market seemed to have dodged any major shuddering from the Federal Reserve meeting and equities were able to overcome early losing rounds and trade mixed through the end of the week.

In the major markets, equities were again mostly flat, but volatility dropped by 0.43 to 25.93, according to the VIX index. The index is an often used gauge of market volatility.

Emerging Europe ends early

Emerging Europe seemed to have ended the week on Thursday afternoon, a trader said.

"It's just more summer dullness," he said, although "the tone is decent."

There's a slight "two-way flow," and things have mildly improved, "apart from Bulgaria and Romania," he said.

The two have been subject to spillover "from the Latvia story," he said.

The Romanian dollar-denominated bonds due 2015 were quoted at 105 bid, 106 offered, while the Bulgarian euro-denominated bonds due 2012 were seen at 106 bid, 106¾ offered.

Farther to the southeast, Turkey's central bank said that signs of recovery may allow the bank to delay rate cuts in order to stave off inflationary pressures.

"The committee will consider a deceleration in the pace of rate cuts or a pause should the indications of an improvement in economic activity point to a robust recovery," the bank said in its minutes from the meeting held on June 16.

The Turkish sovereign bonds due 2030 added ½ point to 152 bid, 152½ offered.

Gas will flow in July

In Ukraine, a payment of nearly $300 million will be sent to Russia's OAO Gazprom for gas shipments during July.

Gazprom chief Alexey Miller has stated that Kiev is behind a purchasing schedule set by prime ministers Yulia Tymoshenko and Vladimir Putin.

This week, Kiev was thought to be in final-stage talks with the International Monetary Fund for a $4 billion loan to cover the remaining debt owed to Russia.

The Russian government bonds due 2030 were better by ½ point to 97¾ bid, 98 offered.

Low volumes in LatAm

Latin America's tone was mildly positive on Friday, but patterns were difficult to determine over very light trading.

In Argentina, interior minister Florencio Randazzo answered charges from opposition candidates that there have been voting irregularities, the Buenos Aires Herald reported.

"Generating doubts about the electoral system is either a naivety or it shows that they're defending particular interests," Randazzo said in the report.

In Brazil, land in the Amazon will be granted to residents, many of whom have long lived there illegally, reports said.

President Luiz Inacio Lula da Silva signed the law with a concession to environmentalists stipulating that no corporations would be given control of any new land.

The law is intended to legitimize the Amazon land trade, but many environmentalists still consider the measure very flawed and may only serve to delay further deforestation in the very near term.

Asia tighter to Treasuries

Asia similarly traded quietly with only slight improvements as Treasury yields backed off.

In China, central bank chief Zhou Xiaochuan called for a "super-sovereign" currency to replace the dollar as the new reserve currency.

Zhou suggested the new currency have the characteristics of the IMF's special drawing rights, which is made of a basket of major currencies.

The dollar dropped following Zhou's statement and was seen trading at 6.839 to the yuan.

Also in the Philippines, central bank governor Amando Tetangco met with central bank officials from Chile.

The peso was seen trading at 48.275 to the dollar.

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