Emerging market debt drifts higher; Turkey prices; funds see $114.9 million outflow

By Reshmi Basu and Paul A. Harris

New York, June 24 - Emerging market debt drifted higher Thursday as another lethargic trading day rolled by with investors waiting for the Federal Reserve meeting next week.

"We're seeing a boring day - not only a boring day, but a boring week," said a market source.

"The only thing of interest was the Brazil deal that we saw recently."

On Monday, Brazil priced $750 million of five-year floating-rate bonds to refinance maturing debt.

During Thursday's session, the overall market was slightly up. The JP Morgan EMBI Global Index rose 0.12%. Its spread to Treasuries was unchanged to 471 basis points.

Turkey follows Brazil

Despite violent bombings that helped drive U.S. Treasury prices lower, the Republic of Turkey sold $750 million seven-year global bonds (B1/B+) at 98.732 to yield 9¼% via JP Morgan and Lehman Brothers.

"I think Turkey is trying to do exactly what Brazil did earlier this week - jump into the market with a deal before the issuance window of opportunity closes," said an emerging market analyst before the deal priced.

"It remains to be seen, though, whether Turkey will be able to get this deal done at a time when bombs are going off in the streets of Istanbul and Ankara - and the violence could get even worse once the NATO summit begins.

"Turkey desperately needs to get a deal done sooner rather than later, though, so in the end they may simply choose to pay up to get a deal done," added the analyst.

At press time, four people were killed in fatal bombings, just days before President George Bush and other world leaders arrive in Istanbul for a NATO summit.

Nonetheless Turkey's debt was up on the day. Its bond due 2034 rose ½ a point to 90¼ bid while the bond due 2012 was up a quarter to 110¾ bid. And the benchmark bond due 2030 was unchanged at 118¼ bid.

Turkey's component of the JP Morgan EMBI Global Index increased 0.29% during Thursday's session. Its spread to Treasuries was unchanged at 462 basis points.

Also, Turkey is expected to sign a new three-year stand-by agreement with the International Monetary Fund before its existing $19 billion agreement expires in February 2005. Turkey owes around $22.5 billion to the IMF.

Fund outflows at $114.9 million

Emerging market bond outflows were $114.9 million in the week ending June 23 or 0.72% of total assets, according to EmergingPortfolio.com Fund Research.

Emerging market debt has bled for the last eight weeks, reducing year to date inflows to $381 million. Since the first week of May, outflows have amounted to $1.05 billion.

Global bonds had $49.6 million of inflows in the latest week and have inflows of $1.96 billion year to date.

By comparison, AMG Date Services is said to have reported $69.5 million outflow from high yield funds for the week ending June 23.

Mexico up on export numbers

Meanwhile new data indicated Mexico's economy is on the road towards economic recovery. The nation's exports increased 21.1% in May. The numbers, reported after the markets closed Wednesday, were expected to be good, but not that good.

"The data on export-import trade balance was reported better than the market was suspecting, showing that not only had exports picked up in the last month but also the maquila sector within the country performed very well - that is the reason why Mexico is trading higher," said a debt strategist at Refco EM.

Also, Mexico's finance minister Francisco Gil increased the GDP forecast for 2004 to 4% from 3-3.5% on Wednesday, due to maquiladora factories.

However, a market source added that, according to Standard & Poor's, fiscal reform will not be achieved until the next presidential cycle. Presidential elections are in 2006.

Brazil up

Brazil was firmer on continuing reaction to comments made by Brazilian President Luiz Inacio Lula da Silva at a Wednesday investor meeting in New York, where he and his cabinet members emphasized the government's commitment to maintaining economic growth over a period of 30 years.

He expects growth this year above 3.5%.

"The financial community was very pleased with their comments. It gave the market a little bit of a push," said the debt strategist.

In addition, Lula's minimum wage victory continues to help Brazil, added the debt strategist.

Brazil's component of the EMBI Index rose 0.15%. Its spread to Treasuries tightened by four basis points to 639 basis points.

Brazilian corporates were trading "a little bit better," said an emerging market analyst on the minimum wage news and to a lesser extent on Lula's comments.

State-owned oil company Petrobras' bond due 2007 was up less than half a point to Thursday's 107½ bid, 108½ offered from Wednesday's 107.15 bid, 107.875 offered.

Beverage producer and distributor company AmBev saw its bond due 2013 unchanged at 104¾ bid, 105¾ offered from Wednesday's 104¾ bid, 106 offered.

And mining company Compania Vale do Rio Doce SA's bond due 2007 was up quarter of a point to 107¼ bid, 108¾ offered Thursday from Wednesday's 107 bid, 108 offered.

In other news out of Latin America, Argentinean economy minister Roberto Lavagna hiked growth estimate for this year from to 6% 5.5%.

And in Chile, finance minister Nicolas Eyzaguirre forecast a fiscal surplus of 1.6% of GDP this year, with 5% GDP growth, up from 4.9%. Meanwhile the inflation forecast was lowered to 1.1% from 1.8%.

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