Morning Commentary: EM improves with currency stability; Vale gains; Turkey steadies

By Rebecca Melvin

New York, July 25 – Emerging markets debt improved on Wednesday with strength attributed to some funds flowing back into the sector and to a continuation of stabilizing currencies amid subsiding U.S. dollar strength, New York-based emerging markets fixed income strategist Michael Roche of Seaport Global said.

EM bond funds saw some $250 million flow back into the sector and funds have had consecutive weekly inflows this month, which is better compared to EM equities.

Brazil’s Vale SA bonds were stronger after an upgrade to investment-grade status by Moody’s Investors Service.

The Vale 6¼% notes due Aug. 10, 2026 were seen at 109.57 early Wednesday compared to 109.00 at the market close on Monday.

Spreads on this bond have compressed some 20 basis points so far this month, which has outperformed the 17 bps compression in the J.P. Morgan IG emerging markets corporate bond index in the same period.

Meanwhile, Turkey’s sovereign bonds stabilized after a slide on Tuesday, with that curve coming in one bp. That compares to a widening out on Tuesday of 25 bps.

Turkey was the worst performer in EM sovereign debt on Tuesday, with a loss in its dollar bond index of 1.65%. It was a dramatic fall, Seaport’s Roche said.

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