* Line between developed, emerging markets blurs further
* Greek 10-year yields soar to record high of 10 percent
* Investors flock to lend to Russia, Egypt, others
* Relative valuations reflect size of Greek debt pile
By Sujata Rao and Carolyn Cohn
LONDON, April 22 (Reuters) - The increasingly hazy line
between developed and emerging markets blurred further this week
as funding costs for Greece and some other euro zone governments
climbed as investors flocked to lend to Russia and other
developing countries.
Greece and other debt-laden euro zone members like Portugal
have seen their borrowing rates soar this year and 10-year Greek
euro-denominated government bond yields hit a record 10 percent
on Thursday. Greek debt insurance costs have now risen to become
the highest in either western or eastern Europe.
The contrasting fortunes were highlighted by the ease with
which investors were willing to lend to Egypt on Thursday. Cairo
managed to raise 30-year dollar cash at under 7 percent, just
two days after markets demanded 3.65 percent from Greece for
13-week euro-denominated t-bills.
Russia, with a 1998 default on its credit record, paid just
3.741 percent and 5.082 percent on five- and 10-year dollar
bonds -- rates that were even lower than Australia or New
Zealand.
Even tiny Latvia, which was at the heart of the sovereign
debt crisis a year ago, this week sold a three-year local bond
at below 6 percent.
"Emerging markets may have gotten ahead of themselves in
terms of valuations but the concerns about the developed world
are absolutely justified," said Jason Manolopoulos, portfolio
manager at Dromeus Capital in Athens.
"On a relative basis, the valuation of emerging versus
Greece is justified because Greece just has too much debt," he
said, comparing Athens' public debt ratio of 130 percent to
eastern Europe's worst case of 80 percent in Hungary.
Even after taking into account the different profiles of the
T-bill and eurobond markets, bond markets in euro zone periphery
and emerging Europe are veering in different directions.
While Greek yields were blowing out, Hungary had a
successful forint bond auction, with an average 10-year yield of
6.4 percent and a bid-cover of 2.5 percent.
It is difficult to say how much Greece would have had to pay
had it pursued recent plans to issue a U.S. dollar bond but
analysts say it would clearly have been far above Russia's rate.
Fund managers said one reason for the Russian issue's
success this week was the participation of so-called "crossover
investors" -- mainstream institutions who have been tempted
recently by emerging markets.
DEBT INSURANCE COSTS
The same pattern applies to debt insurance costs.
Greek five-year credit default swaps are now over 500 basis
points, triple the cost of insuring exposure to non-investment
grade Turkey and more than Ukraine, which is rated B- or six
notches under investment grade.
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For a graphic on Greek and emerging European CDS click on
http://r.reuters.com/req88j
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"The CDS are showing Greece in a kind of no-man's-land
between euro zone and default. Even if they have enough money
thrown at them for this year they will still need to borrow 50
billion euros next year," one fund manager in London said.
"You just do not have that problem in emerging markets."
Many emerging markets have had serious problems of late.
There have been debt restructurings of sub-sovereign Ukrainian
and Dubai firms and much of emerging Europe is recovering slowly
from the recent crisis.
But the divergent fortunes of western and eastern Europe is
illustrated by the fact that investors are said to be queuing up
again to lend to Ukrainian entities, ever since the recent
presidential election resulted in a pro-Moscow government.
Greece is just a snapshot, admittedly the worst one, of the
problems dogging much of the developed world -- where bloated
public debt ratios, anaemic growth and huge borrowing needs are
a legacy of the banking and credit crisis.
