Emerging market debt flat while oil producers outperform; Brazil rebounds

By Reshmi Basu and Paul A. Harris

New York, Aug. 29 - Emerging market debt traded flat on low volumes Monday while oil producers outperformed on soaring oil prices.

Meanwhile Brazilian bonds traded higher as no new corruption allegations surfaced over the weekend.

"Looks like Brazil is having a good day," said a buyside source. "They didn't have... a good day on Friday."

At the end of Friday's session, the country saw the now-customary sell-off as investors set to protect themselves in case any negative headlines popped up.

On Monday, no news was good news for Brazil. During the session, the Brazil bond due 2040 moved up 0.60 to 118.05 bid.

Oil yanks oil producers higher

For the most part, oil producers moved up as oil prices spiked above $70 per barrel on concerns that Hurricane Katrina would impair Gulf of Mexico supply. But by the end of the session, crude prices settled below the record at $67.20, up $1.07.

"Clearly the oil countries have outperformed - Venezuela, Ecuador, Colombia," said the buyside source.

"It seems so quiet that oil is probably a positive," he said, but added that Russia was flat on a spread basis.

During the session, the Colombia bond due 2012 edged up 0.10 to 116.80 bid while the bond due 2033 added 0.35 to 121½ bid. The Ecuador bond due 2030 gained a quarter of a point to 87¾ bid. The Venezuela bond due 2027 was bid at 106.30, up half a point. The Russia bond due 2030 was unchanged at 112 3/8 bid.

"It seems like more than anything that [U.S] Treasuries are up and Brazil has bounced back," he said.

Indonesia declines

A market source told Prospect News on Monday that Indonesia saw declines last week in the rupiah as well as in its stock market. Although oil prices have been a problem, especially because they have caused the government to make the unpopular move of curtailing fuel subsidies, oil prices are not expected to do any lasting damage to the country's economy.

The crucial issue for Indonesia is liquidity, the source said. Currency risk fueled by rising interest rates in the United States are having a negative impact on the exchange rate, which could trigger inflation.

"That should give Indonesia an incentive to come to the bond market soon," the source said.

One rumor floating around is that Indonesia is considering doing an add-on to its dollar-denominated 7¼% global bond due April 20, 2015 (B2/B+).

"It's kind of odd given all their problems," remarked the sellside source. "But I guess it helps support the currency.

"It seems that Indonesia is the country where the bonds have been the weakest over the last couple of weeks," he noted.

"Currency has definitely taken a hit."

The market source spotted Indonesia's dollar-denominated 7¼% sovereign bond due 2015 slightly higher, mid-day Monday, at 97.75 bid, 98.75 offered.

Looking ahead, summer sloth is about to come to an end as the month of September approaches.

"Valuations are just real tight," said the buyside source.

"The Fed is still active. And we still have a fair amount of political risk. I don't think you'll have implosions.

"Once September comes around, it's be interested to see how people start re-investing."

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