Emerging market debt up on GDP data

By Reshmi Basu and Paul A. Harris

New York, Aug. 30 - Emerging market debt saw an upsurge in prices Wednesday, triggered by a revised reading on U.S. Gross Domestic Product data, which fueled sentiment that the a pause in monetary policy is still in play.

This week is serving up a heavy dose of U.S. economic data, which investors have been hoping will provide clues into the future direction of monetary policy. And up to bat on Wednesday was the release of the revised U.S. Gross Domestic Product index.

The Commerce Department upwardly revised economic growth at an annual rate of 2.9%, coming in higher that the 2.5% initially reported. That data helped quell fears that the economy was heading towards a hard landing.

On that news, Wall Street posted gains, which helped give support to the emerging market asset class, according to a trader. Additionally, the news meant that demand for commodities was still intact, noted a market source, which helped commodity exporters score gains in the secondary.

LatAm up on GDP

Against the positive backdrop, Latin America was up on the day.

During the session, the Brazilian bellwether bond due 2040 added 0.45 to 129.90 bid, 130 offered. The Argentinean discount bond due 2033 gained 1.60 to 98 bid, 98.40 offered. And the Venezuelan bond due 2027 was up 0.75 to 123.75 bid, 124.25 offered.

Last week saw the asset class rattled by concerns that the U.S. economy was slowing down by more than originally believed. Weak housing data put the growth story in focus. And for now, the asset class is more comfortable with that story.

But the trader warned that while Wednesday saw a rally on what appears to be an improved picture, too much cannot be read into the session.

"Across the board, everything is higher, but volumes are thin," he said.

"A lot of people are still out. But things are looking good," the trader added.

Meanwhile things may be slow for now, but that is all about to change next week after the Labor Day holiday in the United States, according to a market source.

"Trading will pick up," he said. "And the market's resilience will finally be tested after the slew of data," he added.

Along with revised GDP, this week saw the release of the minutes from the Federal Open Market Committee. The minutes showed the Fed's decision to pause after 17 consecutive hikes was a "close call".

Thursday will see another heavy day of U.S. data such as the July personal income data, jobless claims, the Chicago PMI index and July factory orders. And Friday will see non-farm payroll numbers.

And not only will next week see a pick up in secondary trading, the primary market will see some energy.

Adding to the pipeline Wednesday, Russian Standard Bank will begin a roadshow on Tuesday in Vienna and Geneva for an offering of euro-denominated bonds (Ba2/B+).

The size of the offering and the tenor of the bonds remain to be determined.

Barclays Capital and Credit Suisse have the books.

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