Emerging-Market Debt Stronger As Dollar Weakens, Oil Rallies

   By Joan R. Magee 
   Of DOW JONES NEWSWIRES 
 

NEW YORK -(Dow Jones)- Emerging-market debt continued rallying Thursday as investors still seem keen on adding risk to their portfolios, crude oil hit a seven-month high and the dollar weakened.

The spread on JPMorgan's Emerging Markets Bond Index Global was four basis points wider at 415 basis points over Treasurys in late-afternoon activity, for positive daily returns of 0.24%.

Brazil's benchmark bond, the Global 2040, gained 1/2 to 131 5/16 bid, according to Reuters. Brazil's spread on JPMorgan's EMBIG was two basis points wider at 260 basis points over Treasurys, for a positive daily return of 0.52%.

Venezuela was buoyed by the oil rally. Crude oil futures settled at $72.68 per barrel at the New York Mercantile Exchange, an increase of $1.35 from Wednesday.

Venezuela's risk premium on JPMorgan's EMBIG was 80 basis points tighter at 1031 basis points over Treasurys. Returns were a positive 4.05%.

"There's been a major outperformance of emerging market bonds compared to developed-world bonds," a debt trader, with riskier credits taking a shine.

"Argentina is the leader of the pack right now," the trader added.

Argentina opened Wednesday a two-day Dutch auction aiming at holders of a strip coupon on a locally traded bond. The auction is for holders who wish to receive payment ahead of its currently scheduled date of Aug. 3.

Market participants have lauded the step as Argentina's showing willingness and capacity to pay its debt.

Meanwhile, the Brazilian central bank surprised markets late Wednesday, cutting its base interest rate by a larger-than-expected 100 basis points to 9.25%.

The bank's statement added that any additional reduction of interest rates should be more "parsimonious," signaling that Brazil's long-running easing cycle is drawing to a close.

Goldman Sachs said in a report to clients Thursday it expects a 50-basis-point cut next month and a close to the easing cycle with a 25-basis-point reduction to 8.5% in September.

Brazil's risk premium on JPMorgan's EMBIG was two basis points wider at 260 basis points over Treasurys. Returns were a positive 0.52%.

Turkish Prime Minister Recep Tayyip Erdogan said Thursday he wants talks with the International Monetary Fund on a major loan deal to be over by the end of this summer.

Turkish business leaders urged the government to sign a new agreement with the IMF, criticizing the government for being "unnecessarily" slow on this matter.

Turkey's risk premium on JPMorgan's EMBIG was 16 basis points wider at 316 basis points over Treasurys. Returns were a negative 0.14%.

-By Joan R. Magee, Dow Jones Newswires; 201-938-5692; joan.magee@dowjones.com.

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(END) Dow Jones Newswires

June 11, 2009 16:37 ET (20:37 GMT)


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