Emerging market debt rides high as investors eye Friday's job numbers; Latin America soars

By Reshmi Basu and Paul A. Harris

New York, Nov. 4 - Emerging market paper moved higher Wednesday, as strong fundamentals and a swift closure to the U.S presidential election have put investors in a buying mood for riskier assets.

The tone of the market in recent sessions had been dictated by the uncertainty of the presidential election, sidelining both buyers and issuers.

Now, one more event stands in the way before the market can pick up speed. And that event is Friday's non-farm payroll numbers, which investors will use as a gage to see just how weak the U.S economy is.

"The [debt] market in general is in incredibly good shape," said a market source.

"Very strong technicals. There seems to a fair amount of money out there waiting for opportunities," he said.

Recently, there have been few openings as the primary market shifted into the off position as issuers were unwilling to expose themselves to risk in case the presidential election was drawn out.

"We've had relatively little issuance recently," said the market source.

"Tone is driven largely by the technicals that exist in both the investment-grade market and high-yield market, where they both have seen very little supply and a fair amount of money - both here in the U.S. and also importantly, in the investment-grade market in particular, the significant amount of foreign buyers of corporate bonds.

"There's really a very strong tone there," he said.

He added that the positive tone of the market would usher in issuers.

"There is nothing that is firmly on the docket right now," said the market source. "But you got to imagine that given how strong the tone is, given how low interest rates are, where spreads are in the context of where they have been this year, that issuers are going to start to take advantage of it," he noted.

And once the U.S employment numbers are out of the way, issuers may finally return as the window of opportunity opens up, he said.

"There's nothing on the horizon other than the employment number tomorrow [Friday] - what sort of tone it sets.

"You got the Fed on Tuesday, but that's largely considered a foregone conclusion that they will move 25 basis points."

Then November sees some holidays such as Veteran's Day next Thursday and Thanksgiving in a few weeks, he pointed out.

"Just avoiding some of those particular events, the market is wide open. So I imagine that people are going to start taking advantage of it or quite frankly, I think they should take advantage of it."

Emerging market paper up

Emerging market debt had a strong performance during Thursday's session, basking in the afterglow of a quick presidential election.

"I think the market had a very good day," said Enrique Alvarez, Latin America debt strategist for think tank IDEAglobal.

"Overall prices were up, led by the high beta camp where a lot of new directional trades were put in place," he said.

Paper from Brazil and Venezuela both had strong showings, said Alvarez.

The Brazil C bond gained 3/8 of a point to 100 1/8 bid while the bond due 2040 added 0.85 to 114½ bid. The Venezuela bond due 2027 rose 0.80 to 104½ bid.

"All of the high beta camp was up soundly. The BB credits like Colombia and the Perus were also up at least half a point.

"So overall, you have a very good day for Latam," said Alvarez.

However, there is no main driver as to why debt from Latin America was successful on Thursday, according to Alvarez.

"It's very difficult to pinpoint a reason except for a couple of facts.

One would be that the [U.S] 10-year Treasury yield continues to be very subdued, in spite of all the different influences we have coming into the market.

"We have a very weak U.S dollar. Crude prices are still very close to $50 a barrel but in spite of that 10-year yields continue to point to a sense that the U.S economy is very weak.

"And that's helping that yield and in turn that's helping Latam," Alvarez said.

U.S Treasury prices ended higher Thursday on expectations that the U.S non-farm payroll data would be muted. The yield on the 10-year note landed at 4.06%.

"People are making directional bets now on a continued publication of very soft economic numbers in the U.S," said Alvarez.

"Now this hinges also on tomorrow's [Friday's] non-farm payroll numbers. I think people are starting to think that there is larger percentage of a downside on the NFP numbers than there is on the upside," he said.

According to market consensus, the median forecast is the creation of 175,000 jobs

"A downside surprise - a 100,000 range or below is the actual risk - meaning that if it comes at that level, you will see people jumping on board to higher yielding assets such as Latin America," commented Alvarez.

Troubled Yukos

Meanwhile the saga of the troubled Russian energy giant Yukos continues.

The company said it will hold a December meeting of shareholders to decide whether, in light of the government adding an additional $6.7 billion to the company's massive back tax bill, it should continue to operate or seek bankruptcy protection from its creditors.

As to why shareholders might vote for bankruptcy, conceivably reducing the value of their own shares to zero, one market source suggested the move would make sense if the shareholders are also debt holders, in which case bankruptcy would eliminate "outside" shareholders and leave the debt holders with an equity stake.

The Russia bond 2030 was up 1¼ points to 101½ bid.

Latin America corporates up

Latin American corporates made gains during Thursday's session from Wednesday's session.

Brazilian steelmaker Companhia Siderúrgica Nacional's bond due 2015 gained quarter of a point to 102¼ bid, 103¼ offered from Wednesday's 102 bid, 103 offered.

Petróleo Brasileiro SA's bond due 2018 gained 1/8 of a point to 100¾ bid, 101¾ offered from Wednesday's 100 5/8 bid, 101 5/8 offered.

Mining company Companhia Vale do Rio Doce's bond due 2034 rose 1/8 point to 98 5/8 bid, 99 5/8 from Wednesday's 98½ bid, 99½ offered.

Sugar miller Cosan's bond due 2009 was up ½ point to 102½ bid, 103½ from Wednesday's 101¾ bid, 102¾ offered.

Petrochemical company Braskem's bond due 2008 fell 1/8 of a point to 113 bid, 113¾ offered from Wednesday's 113 1/8 bid, 113 7/8 offered.

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