Emerging market debt rises with Treasuries on auto woes; Asia weaker

By Reshmi Basu and Paul A. Harris

New York, April 11 - Emerging market debt closely tracked the U.S. Treasuries market in light volume Monday, as the Treasuries market made gains on Ford Motor Co.'s financial woes.

"The [EM] market is still looking for clues," said a trader. "There's a data void, so people are waiting until they get some sort of feel for how the market will move."

Emerging markets followed Treasuries, where the yield on the 10-year has been trading within the 4.42% to 4.52% range in recent sessions.

On Monday, yields on U.S. Treasuries fell, aided by Ford's late-Friday profit warning, which prompted investors to look for a safe haven, said a market source. The warning was quickly followed by a negative credit outlook revision from Standard & Poor's and Fitch Ratings.

The yield on the 10-year note fell to 4.43% from Friday's 4.49%.

The gains in Treasuries helped boost emerging market paper. The Brazil C bond moved up 0.062 to 99.687 bid while the bond due 2040 was up 0.15 to 112¾ bid. The Russia bond due 2030 gained 1/8 of a point to 104¼ bid. The Turkey bond due 2030 added 3/8 of a point to 135 bid. The Venezuela bond due 2027 rose 0.35 to 99.60 bid.

But Mexico's bonds saw some bruising after last week's political troubles. The Mexico bond due 2009 was down 0.10 to 118¾ bid.

Last week the Mexican congress voted to strip Mexico City mayor Andres Manuel Lopez Obrador of his immunity. Obrador will likely faces charges that he ignored a court order to stop construction of a hospital access road on private land.

"Generally the market traded very well today [Monday] in the wake of the Ford news from late Friday," said a sellside source.

"The tone was reasonably positive throughout the course of the day. The trading levels may not actually reflect that, but the tone is reasonably good right now," said the source.

"When the biggest borrower in the investment-grade market widens by 100 basis points you expect it to have a larger impact than it actually did. But the news did not have a significant spill-over into the rest of the market place, which is a very good sign," added the sellside source.

The market source added that emerging markets could see volatility ahead as this week sees several releases that could upset the Treasuries market.

On Tuesday, the Federal Open Market Committee will disclose the minutes from its March 22 meeting. March retail sales data is released on Wednesday and the March industrial production figure is released on Friday.

Asia down on Ford

In Asia, a market source said that Asian paper traded down on Ford's revised rating from last Friday.

The source said high-grade spreads were two to eight basis points wider at the close of the Asian market Monday. The source added that high-yield names were half a point to three-quarters of a point weaker.

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