Emerging market sovereign bonds rose on Friday on investor optimism that the United States will continue to cut interest rates in an effort to keep its economy growing and so help emerging markets' exports.
Late on Friday US Federal Reserve Chairman Ben Bernanke bolstered investor hopes for rate cuts when he said a resurgence in financial strains in recent weeks had dimmed the outlook for the US economy, signalling an openness to easing monetary policy in order to keep economic growth alive.
Investors in high-risk emerging market assets took this to mean their exports to the United States might not suffer as much as expected, but expectations for a rate cut are not all positive. "On the whole that sense of relief that we have seen over the last couple of days on the back of the Fed is permeating the risk assets," said Rafael de la Fuente, Latin American chief economist at BNP Paribas in New York.
"My concern of course is that this admission on the part of the Fed is that the credit crunch could alter the balance of risk further. It is an admission things are getting worse in the real economy at a time when there are skeletons in the financial system, and there is nothing to say we won't see further deterioration in the balance sheets," he added.
The benchmark J.P. Morgan Emerging Markets Bond Index Plus showed yield spreads narrowed by 8 basis points to 248 basis points over weaker US Treasuries. Normally the prospects for lower interest rates helps lift US Treasuries. However the market moved in the opposite direction as investors latched onto the idea that a Fed lifeline would help growth and stocks, draining the buying sentiment away from fixed income assets.
Among the more actively traded issues, Venezuela's main benchmark issues continued a small rebound. The price of the 2027 dollar-denominated bond has fallen more than 10 full points in the last month even as oil prices have surged. It was up 0.875 points in price to bid 98.875, yielding 9.373 percent.
Comments
Comments are closed.