EM assets dip, then rally after payrolls data; Lat-Am CDS tighten; Turkey faces uncertainty

By Christine Van Dusen

Atlanta, May 6 – Global risk assets did not at first react strongly to the weaker-than-expected payrolls data released by the United States on Friday, but later in the session they rallied.

“The price action today exemplified the ‘bad news is good news’ environment that currently exists,” a New York-based trader said. “Markets were able to shrug off the lackluster employment report and carry on with the rally.”

Bonds from Latin American moved tighter and higher into the close, following some early-morning weakness, he said.

Brazil’s five-year credit default swaps spreads finished Friday at 341 basis points from 346 bps, even as Fitch Ratings cut its sovereign rating to BB from BB+ as a result of the economy’s contraction and political uncertainty.

Meanwhile, Mexico’s CDS traded at 167 bps after closing Thursday at 170 bps.

“Cash prices move aggressively higher in the thin afternoon trade as offers are lifted across all names and trade inquiry became heavily skewed towards better buyers,” he said. “Lat-Am high yield finishes firm on the session as well.”

In other news from Latin America, Brazilian telecommunications company Oi SA is said to be negotiating to convert its debt to equity with bondholders.

Turkey was on radar screens on Friday as the country grappled with political uncertainty stemming from the prime minister’s plan to give up his position.

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