Emerging markets trade weaker; Treasury selling narrows spreads; exporters slide on oil decline

By Aaron Hochman-Zimmerman

New York, Dec. 5 - Emerging markets traded heavier even as risk appetite came rushing back to the equity market as Hartford Financial released an encouraging 2008 forecast.

Still, trading around the emerging markets was light and "very lethargic," a trader said.

In trading, a variety of issuers were weighed down by the bleeding out of oil prices.

Oil exporter Venezuela lost 1 point from its bonds due 2027, while issues from Brazil and Russia were lower as well.

"People don't have as much money to put to work ... there has been so much wealth destruction," a strategist said.

With what may be "the worst earnings season in history" drawing near, "there's no reason to jump in now," he said.

Even as cash levels dipped lower, spreads came in as the idea that Treasuries have been severely oversold caught up to investors.

"Spreads are tightening all over the place," the strategist said.

As Treasuries unwind further, spreads will tighten, which may give people a false sense of security and "that may distort the picture," he said.

Meanwhile on Friday, the late buying in the equity markets finally broke the buying streak in Treasuries and emerging markets spreads tightened by 16 basis points to a spread of 754 bps, according JPMorgan's EMBI+ index. The EMBI+ calculates the amount of extra yield investors will demand to hold assets in emerging market debt.

The EMBI global diversified index, which represents sovereigns and quasi-sovereigns, was tighter by 15 bps with a spread of 792 bps.

The diversified index has a less strict liquidity rule for inclusion.

Volatility remained steady through most of the session until the Hartford Financial-inspired rally launched equities and cut volatility by 3.71 to 59.93, according to the VIX index. The index is an often used gauge of market volatility.

Emerging Europe ends quietly

Trading was light in emerging Europe as the week closed on Friday.

"It's December. ... [In September] more would've happened off this number," he said about the day's unemployment figures from the United States.

The market would likely have seen a lot of new shorts as "the crossover is blowing out like crazy," he said.

Meanwhile in Russia, the ruble continued to drop as the government allowed weakening as oil sank on drying demand.

As light sweet crude fell below $42 per barrel, the ruble was seen trading at 28.173 to the dollar.

It may be likely that the government allows for "a big one-off devaluation" at the beginning of 2009, a strategist said, "just to prevent the continuing bleed of reserves."

Also, Russia's foreign minister, Sergei Lavrov, said his country is ready to form closer ties with NATO.

"Several trends in the activities of the Russia-NATO Council were frozen up not at our initiative. We are ready to resume these relations, but they should be based on mutual interests," he said, according to the Itar-Tass News Agency.

The Russian government bonds due 2030 were seen lower at 78.5 bid, 79.25 offered.

Elsewhere in Turkey, a delegation from the International Monetary Fund plans to visit the country later in the month, reports said.

The IMF plans to meet with Turkish officials after a holiday which ends Dec. 15.

The Turkish sovereign bonds due 2030 were quoted at 133 bid, 136.5 offered.

LatAm slides on fundamentals

On another slow day in Latin American credit, investors were "scratching their heads" over the increase in risk appetite spurred by the huge gains made by Hartford Financial, a syndicate official said.

"We had the worst employment numbers in 30 years," he said.

Ecuador continued its climb away from default levels after what the syndicate official called "market manipulation."

Investors believe Ecuador is going to buy back global bonds at depressed levels, he said.

Still, "I haven't seen anything that should be able to move the market," he said.

In Argentina, president Cristina Kirchner rolled out another phase of the government's economic recovery package.

A $4 billion plan will include $1 billion in low-cost consumer loans, $890 million in car loans, $865 million in small-business credit and a 5% cut on grain export taxes, the Buenos Aires Herald reported.

The 8.28% Argentine discount bonds due 2033 dropped 2 points to 26 bid, 30 offered.

In Venezuela, as commodities and oil prices, in particular, continued to freefall, bonds suffered as well.

The 9¼% Venezuelan bonds due 2027 gave up 1 point to 63.5 bid, 64.3 offered.

Also in Brazil, further devaluation of the real cast a shadow over the country's credit as the 11% Brazilian bonds due 2040 traded 0.5 point lower at 117.65 bid.

Asia cash lower, spreads tighter

In Asia, issues sank as fundamental realities crept back into the minds of investors despite spread tightening on selling in U.S. Treasuries.

In the Philippines, year-to-date inflation fell to 9.4% as headline inflation fell to 9.9% in November from 11.2% the previous month, the central bank announced.

The bank credited lower commodity and fuel prices for the November easing.

The lower inflation figures are "a welcome development," bank governor Amando Tetangco said in a statement.

The peso was seen trading at 49.085 to the dollar.

The Philippine government bonds due 2030 lost 2 points to trade at 100 bid, 105 offered.

Indonesia's bonds due 2017 also lost 2 points to trade at 66 bid, 74 offered.

Elsewhere in Asia, Russian president Dmitry Medvedev arrived in India to full military honors ahead of security themed talks with prime minister Manmohan Singh.

"Moscow is ready for full-scale cooperation on all anti-terrorist issues with New Delhi. Definitely, we are ready to help our Indian friends in countering terrorism," Medvedev told reporters.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.