Brazil and Mexico rebound; Ecuador up despite political turmoil

By Reshmi Basu and Paul A. Harris

New York, April 18 - A few emerging market credits nudged higher Monday amid risk aversion's tight grip on market sentiment. Also, Ecuador moved up despite congress' decision this weekend to sack the country's supreme court.

Monday's session was off to a positive start, said a sellside source.

"I think all of the markets have bounced today [Monday] from their opens," said the source.

"We're seeing things back to where they were on mid-day Friday, before things really came off at the end of the day."

Paper from Brazil and Mexico was firmer during the session, while other credits were a "little better to quiet," as they faced liquidity problems, according to Enrique Alvarez, Latin America debt strategist for think tank IDEAglobal.

In trading Monday, the Brazil C-bond gained ¾ of a point to 99.062 bid while the bond due 2040 added 1¼ points to 111.85 bid. The Mexico bond due 2009 added 0.10 to 118 bid.

"You saw somewhat of a technical relief bounce in Brazil," said Alvarez.

"I think there is still a liquidity premium attached to a lot of the higher liquidity credits. The second tier credits are having difficulty finding depth of liquidity," he remarked.

Emerging markets have endured a downtrend in recent sessions, set off by worries surrounding the earnings outlook for General Motors Corp. and Ford Motor Co. as investors seek quality in the U.S. Treasuries market.

Things may turn ugly when GM announces its earning on Tuesday. Ford is slated to release its earning report on Wednesday.

"There are a lot of things happening during the next few days," said the sellside source.

"People are watching for the Ford and GM results. People aren't optimistic right now regarding first quarter earnings. And any bad earnings number could likely hit us just as hard."

The sellside source said that investors would return from the sidelines when there is "more liquidity" and "tighter bid-offer spreads".

"With the exception of Friday, when people were perhaps panicking, we have not really seen any real-money selling," remarked the source.

"On the other hand that means that people may have not raised as much cash. But we have also has some fairly large coupon payments coming in.

"So in general, I think we are going to find out that cash levels are higher, so that people have money to spend. But they won't want to buy if they think that the next move is still down," added the source.

As one trader said, risk aversion is the focus.

"Suddenly the emerging markets are decoupled from U.S. Treasuries," he said.

"The days are long gone when someone could make a quick buck by subscribing to a new issue and selling it three days later."

Ecuador debt rises despite protests

Ecuador's paper moved higher Monday despite protests this weekend calling for president's Lucio Gutierrez's resignation over the dismissal of the Supreme Court.

The country's parliament voted to dismiss the country's entire 31-member Supreme Court on Sunday.

"Ecuador is ending the day much more positively than it started," noted Alvarez.

Alvarez questioned why the bonds would finish quite as strong as they did, given that Gutierrez's administration is on its last legs.

"There was a lot of political noise over the weekend in Quito. Basically they have no judicial system in place at a high level at this point in time.

"The problem that I see going forward is that Gutierrez has lost an infinite amount of support," he commented.

Furthermore, Alvarez said he does not believe that Gutierrez can hold on to his ability to govern.

Instead, the market is focusing on the latest news out of New York, where a team from Ecuador is visiting.

Alvarez said that the team "understands that politics should cause more complications for Ecuador moving forward.

"However, they seem to be content at looking at the possible swap trade transaction that was rumored for quite awhile. And it may be that that brought the paper back and nothing else," he remarked.

There has been speculation that the country will swap up to $1.25 billion in bonds for new paper.

Ecuador plans to relaunch an offering of bond due 2012, said Angel Polibio Cordova, president of the board of directors of Ecuador's Central Bank at press conference at the Council of the Americas in New York.

Despite political turmoil, the bond due 2030 added ½ a point to 85½ bid. The bond due 2012 gained one point to par.

Philippines not ready

The Philippines has put a new sovereign issue on the backburner, given the current volatility on the market, according to the sellside source.

"The Philippines may want to do something at some point, but I don't think they are doing anything right now. No one is going to do anything right now," said the source.

"If the Philippines were to issue right now it would be a real sign of desperation, and they would just get taken to the cleaners."

Instead, investors will need to look to the secondary market, remarked the source.

"If people want to buy $20 million of the Philippines they can find it in the secondary market. It may not be exactly the bond that you want.

"If you want to buy a certain higher quality corporate you might struggle a little to get the bonds. But I think everybody feels as though the last thing you need is new issues because you just don't know where the market is going to be the next day.

"No one wants to buy until they feel that the market has bottomed out," commented the source.

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