Emerging markets improve; LatAm high-betas gain ground; China stimulus plan helps tighten spreads

By Aaron Hochman-Zimmerman

New York, Nov. 10 - Securities trading in emerging markets saw spreads tighten and prices rise during Monday's short trading session.

The ball began to roll on Sunday when China announced its $586 billion stimulus plan.

Markets around the world reacted positively, and sentiment followed after.

"The markets are firm to slightly tighter," a strategist said Monday.

In trading, the battered high-betas in Latin America were up as the benchmark issues from Argentina and Venezuela added 2 points and 3.5 points, respectively.

Equities in the United States began to turn sour by the 2 p.m. ET bond market close, and volatility hung below 61.00, almost 4.00 higher than Friday's close. The index is a common measure of market volatility.

Still, improved sentiment in the credit markets helped reel in spreads in emerging markets, which narrowed by 23 points to a spread of 590 bps, according to JPMorgan's EMBI+ index. The EMBI+ determines the amount of extra yield investors will demand to hold assets in emerging market debt.

LatAm firms up

Markets were "quiet, firm but quiet" in Monday's abbreviated session, a strategist said.

"We're just watching S&P and all the rating agencies as emerging markets is concerned," he said, "so the news is fairly positive for Latin American bonds; the views have not changed that much."

Severely damaged Argentina was still waiting for the Senate passage of the government's pension fund nationalization program.

The 8.28% Argentine discount bonds due 2033 added 2 points to 29 bid, 30 offered.

For Venezuela, the equity recovery around the world helped buoy oil prices.

The country's main export was seen trading as high as $65.50 per barrel, while the Venezuelan 9¼% government bonds due 2027 tacked on 3.5 points to 65 bid, 66 offered.

Also in Latin America, the highly traded 11% Brazil bonds due 2040 were seen at 118.25 bid, 118.75 offered.

Asia lifted by China bailout

Asia performed strongly on light volumes after China announced its $586 billion stimulus package on Sunday.

The package is slated to prop up Chinese infrastructure as well as offer subsidies to farmers and the poor.

"We must implement the measures to ensure a fast and stable economic development," said premier Wen Jiabao, according to reports.

The stimulus was felt throughout equity and credit markets all over the world, although U.S. equities faded into the afternoon.

In the Philippines, the government decided to accept bids for all of the bids made for Treasury bills on Monday.

The government has rejected the majority of bids in recent months, according to the Manila Times.

The Treasury sold PHP 2.5 billion of the six-month bills, which went at 6.5% compared to recent bids of 6.3%.

Banks were willing to buy more than PHP 3 billion.

The government sold the entirety of the PHP 2.5 billion of one-year notes at 6.9% compared to earlier bids of 6.5%.

"There is still some amount of risk aversion in the system, but once investors start to feel that everything is fine, then it will be back to normal," said finance undersecretary Gil Beltran in the report.

The peso was seen trading at 48.638 to the dollar.

Emerging Europe rides Asian wave

Europe improved on light flows with help from the overnight Asian session.

The Chinese stimulus plan helped support markets around the world.

In Russia, president Dmitry Medvedev signed amendments to the 2008 through 2010 budgets put forward by the legislature, according to the Itar-Tass News Agency.

The amendments have provisions to support the faltering Russian banks as well as support for the Russian nationals living in the breakaway republics of Abkhazia and South Ossetia.

The measures grow the budget by 172 billion rubles.

"The amendments do not alter main budgetary parameters. They will fund unforeseen expenditures of the second half of the year and help ensure Russia's economic stability," the chairman of the Federation Council Budget Committee, Yevgeny Bushnin, said in the report.

Also, Russian economic representatives will meet with an E.U. delegation in Nice, France, on Friday to discuss the economic future of Europe.

The economic forum will follow a security forum earlier in the week.

The two sides are at loggerheads over the deployment of missiles on either side of the E.U. border.

The United States intends to place defensive missiles and radar systems in the Czech Republic and Poland, which prompted the Russian government to propose a short-range missile deployment along its own western border.

The ruble was seen trading at 27.041 to the dollar.

The Russian sovereign bonds due 2030 added 1.875 points to 92.75 bid, 92.75 offered.

Elsewhere in emerging Europe, Turkey's industrial sector suffered a 5.5% slowdown during September, the worst it has performed since 2001, according to the Turkish Statistical Institute.

Manufacturing fell 6.4% while mining dropped off by 4.3%, the institute said.

However, commodity and utility sector production of electricity, gas and water rose 1.6%.

Still, the Turkish government bonds due 2030 managed to jump 6 points to 131 bid, 132 offered.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.