Brazil continues to gain on economic data; all eyes on Friday's job data

By Reshmi Basu and Paul A. Harris

New York, Aug. 30 - Emerging market paper rose Monday as a mixture of rumors and last week's strong economic data from Brazil lifted its debt.

"People are returning to the asset class," said a trader. "The tone is positive, but Friday will be very telling of things to come."

On Friday, investors will be eyeing the release of U.S. non-farm payroll numbers for signals as to the velocity of Federal Reserve action.

During Monday's session in emerging markets, Mexico, Russia and Venezuela were all up. The Mexico bond due 2026 added 0.40 to 149½ bid. The Russia bond due 2030 was bid at 951/2, up 0.125. And Venezuela's bond due 2034 rose 0.10 to 93 bid.

Overall, the JP Morgan EMBI+ rose 0.37%. Its spread to Treasuries tightened three basis points to 432 basis points.

In primary news, PT Mitra Global Telekomunikasi Indonesia will be hosting roadshows this week in Singapore and Hong Kong for its $260 million three-tranche bond deal (B+).

A roadshow will be held in London during the week of Sept. 5.

The telecommunications provider will sell $100 million of three-year bonds, $140 million of six-year bonds and $20 million of seven-year bonds.

Deutsche Bank Securities and UBS Investment Bank are running the books.

Brazil up on rumors and economic data

Brazil continued to edge higher Monday in response to last week's economic data and speculation of a sovereign issue and potential rating upgrade. To quell rumors, Standard & Poor's reaffirmed Brazil's ratings on Thursday.

"Rumors started this morning that Brazil was coming to market," said the trader. "Then it sort of disappeared."

The trader said he expects Brazil to come to market with a seven-year issue in the next few weeks.

"It makes sense to come to the market place when your debt is doing that well. It will diminish your debt," said a Latin American debt strategist at Refco EM.

In trading Monday, Brazil's debt was higher with the C bond adding one point to 98¼ bid while the bond due 2040 was bid at 107.35, up 1.55.

"A couple of microeconomic releases last week are behind the rally today [Monday] and the days before," said the Refco strategist.

"The trade balance was very positive, breaking new highs."

That coupled with Brazil's anticipated $20 billion current account surplus for 2004 is attracting investors to the country, according to the debt strategist. This is a positive for Brazil because it is a country that is highly in debt and historically has been in need of money from different sources.

"So being able to report a current account of that magnitude is positive for the debt and by all means diminishes the risk of the country," he said.

The other variable working in Brazil's favor is "investor's perception that the macroeconomic discipline of the country is pushing the country to new levels of economic development," said the Refco strategist.

Nonetheless, the strategist warned that the market is disregarding potential interest rate hikes by the Brazilian central bank.

"I'm a little surprised how the market reacted to this - ignoring what was said about the potential increase on the local Selic rate due to inflation pressure in the economy.

"The market is ignoring it. And proof of that is the performance of the sovereign today [Monday]," he added.

In its minutes released last week, the central bank said that combating inflation may require a "more active" interest rate policy.

IMF visit to Argentina

On Tuesday, International Monetary Fund's new head Rodrigo de Rato lands in Buenos Aires to meet President Nestor Kirchner to discuss the country's negotiations with bondholders.

"We need to get more information from both parties to understand what is going on in terms of the negotiations," said the Refco strategist

The IMF has taken the role that the Argentine government needs to improve its debt offer to bondholders over restructuring the country's nearly $100 billion debt that defaulted in 2001, according to the source.

"And then the government has said they are not going to improve it."

However, there are rumors floating in the marketplace that Kirchner's government will sweeten the proposal.

The country's current plan, announced in June by economy minister Roberto Lavagna, offers creditors new securities that would give them 25 cents per $1 face value of defaulted debt. Bondholders balked at the offer.

"I don't think any concrete news will come out of the meeting, but it's still in the market that the process of negotiations is present," he noted. "So that's good news."

The Argentina bond due 2008 lost 0.15 to 29¼ bid in trading Monday.

© 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.