Emerging market credits strengthen; Asia leads gainers; Venezuela's bonds improve with oil prices

By Aaron Hochman-Zimmerman

New York, March 10 - Emerging markets posted a strong day of gains thanks to an equity market spurred higher by rare bits of good news from the financial sector.

Asia took more advantage of the situation than the other sectors, but largely the emerging market credit world did not change.

"We can have huge stock rallies without changing the general sentiment," said a London-based trader.

"Probably tomorrow we'll lose it, won't we?" he asked.

For the moment, Indonesia traded well and put the levels of its new bonds due 2014 and 2019 above reoffer prices.

Venezuela also added 1.5 points to its bonds due 2027 as oil prices continued to hold higher levels.

From the major markets, volatility dropped sharply by 5.31 to 44.37, according to the VIX index. The index is a common measure of market volatility.

The strong showing on Wall Street helped emerging markets tighten 20 basis points to a spread of 672 bps, according to JPMorgan's EMBI+ index. The EMBI+ determines the amount of extra yield investors are willing to accept to hold assets in emerging market debt.

Asia still outperforming

The other sectors were given a slight boost by the so-called bear market rally in the equity markets, but Asia "is a lot higher," a trader said.

"Overall the market's been pretty resilient," he said.

Indonesia continued to bounce back from its oversupply selling.

"The sovs are trading very well," he said, although the high-yield corporate market is "moving to its own beat," which is "very much credit specific and a lot weaker."

The new Indonesian bonds were both better by about 2 points.

The bonds due 2014 traded at 101 bid, 101.5 offered, while the bonds due 2019 were at 99.5 bid, 100 offered.

The Philippines bonds improved but still lagged Indonesia.

Also in the Philippines, the central bank registered $89 million in foreign direct investments for December.

"Notwithstanding investors' risk aversion, the country managed to post cumulative net FDI inflows in 2008 amounting to $1.5 billion," governor Amando Tetangco said in a statement.

Still, the inflows were slowing.

The numbers for the month were 3.3% lower than 2007, and the numbers for 2008 were 47.9% lower than 2007.

In 2008, the United States, Japan and Singapore were the country's leading investors.

The Philippines sovereigns due 2030 were up 0.75 point at 113.5 bid, 114.5 offered.

Elsewhere in Asia, Pakistan's bonds due 2017 were seen at 42 bid, 46 offered.

Emerging Europe catches day's rally

Trading in emerging Europe built on the global equity rally on Tuesday.

"Yesterday was a waste of time," a trader said about Monday, but on Tuesday there was "a bit more going on."

The issues in each class basically traded evenly, he said.

"There's almost no discrepancies these days," he said. "It all goes up or it all goes down."

"Some of the corps are a little slow to respond," he said, as most of the trading has dealt with "mainly the sovs and the benchmark stuff."

In Russia, the government's energy firm OAO Gazprom has reached out to Hungary to form a joint venture in order to complete the Hungarian section of the South Stream gas pipeline, according to reports.

"An agreement between Gazprom and the Hungarian Development Bank is ready for signing," said Russian prime minister Vladimir Putin after a meeting with Hungarian prime minister Ferenc Gyurcsany in Moscow.

The pipeline is intended to bypass Ukraine by transporting Russian gas underneath the Black Sea to Varna in Bulgaria. The pipeline will then head through the Balkan Peninsula to Italy.

The project is also ongoing in Serbia.

The Russian sovereigns due 2030 were seen at 89.25 bid, 89.75 offered.

Meanwhile in Turkey, the bonds due 2030 added 2 points to 123 bid, 124 offered.

Also in South Africa, rumors of a possible 10-year benchmark bullet bond still turned a few heads in the market.

The South African bonds due 2012 were spotted at 102.5 bid, 103.75 offered.

In LatAm: Walk, don't run

Latin America watched the tide come up from Wall Street, but the category largely stayed out of the water.

Similarly to the category's insulation from instant losses, it is also insulated from instant gains, said Enrique Alvarez, a Latin America debt strategist at think tank IDEAglobal.

"It's a little on the boring side," he said.

Investors are "not buying into the theory that this is the big turnaround," he said.

In Venezuela, levels were slightly better as oil prices were back up on a possible production cut from OPEC.

Light sweet crude was seen trading as high as $46 per barrel.

The 9¼% Venezuelan sovereigns due 2027 jumped 1.5 points to 55 bid, 55.8 offered.

"There was some upside in Argentina," he said, as the bonds were helped by "a technical bounce on last week's selling" prompted by a breakdown in already uneasy relations between the government and the agriculture sector.

The 8.28% discount bonds due 2033 tacked on 1.375 points to 25.875 bid, 26.625 offered.

Also in Brazil, the 5 7/8% Brazilian bonds due 2019 added 0.375 point to 93.375 bid, 93.8 offered.

"It's a frustrating experience," Alvarez said, as the market seems to be stuck in the doldrums with no near-term hope for direction.

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