Morning Commentary: EM debt weak as rates move up again; new Romania notes edge wider

By Rebecca Melvin

New York, Oct. 5 – Emerging markets debt was weaker again on Friday as U.S. Treasury yields pushed higher for a third straight day after the U.S. Labor Department's monthly jobs report showed rising wages, a sharp revision higher in August's nonfarm payrolls, and an unemployment rate that stands at its lowest level in nearly five decades.

The unemployment rate ticked lower to 3.7% from 3.9% as 134,000 non-farm jobs were added to the U.S. economy in September.

The yield on the benchmark 10-year Treasury note was higher at 3.208% on Friday, down slightly from 3.233% notched right after the jobs report was released at 8:30 a.m. ET.

“Rates moves have been the main driver in the past couple of days,” a London-based trader said about emerging markets debt.

There has been some investor pushback with two deals postponed in the Central & Emerging Europe, Middle East and Africa region in response to the pick-up in rates, a London-based market source said.

The two deals were Gulf International Bank and Octal, the source said.

Meanwhile, investors are now focused on a key technical level of 3.25% for the 10-year Treasury note.

Romania’s two new issues were trading about 3 basis points to 4 bps wider early Friday, which wasn’t surprising given the weaker broader market, a market source said.

On Thursday, Romania priced €1.15 billion of 2 7/8% 10-year notes at 98.652 to yield 3.029%, or mid-swaps plus 195 bps, and €600 million of 4 1/8% 20-year notes at 98.55 for a yield of 4.234%, or mid-swaps plus 270 bps.

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