Emerging market bond prices rose slightly in quiet trading on Friday as issuers stayed out of the market while sustained optimism over the course of US interest rates drew fresh cash into the asset class.
Total returns rose 0.20 percent on the JP Morgan Emerging Markets Bond Index Plus while spreads over comparable US Treasuries narrowed by six basis points.
Concerns over a burgeoning banking crisis in Russia that pushed down prices on Thursday subsided somewhat as Finance Minister Alexei Kudrin told reporters that problems at some banks would not spread to the whole system.
Russia accounts for more than 17 percent of the EMBI+, the largest segment after Brazil and Mexico.
Emerging bond prices were buoyed by last week's decision by the US Federal Reserve to raise interest rates by only a quarter percentage point in line with expectations.
Lower US rates and lower accompanying yields on safe-haven Treasuries favour emerging market debt prices as they force investors to seek out riskier, higher-yielding paper.
Fears that banks, companies and countries eager to cash in on a better post Fed-hike emerging borrowing climate could bog down the market with new issues have worried some investors.
But issues have stayed at a trickle rather than a flood, allowing prices to rise on Friday, albeit amid low volume.
"We're off yesterday's lows," a trader said. "We saw some better account buying this morning and there seem to be some fresh funds coming in," he said, adding: "I wouldn't call this a huge turnaround by any stretch of the imagination."
Investors were looking ahead to US producer price data on Thursday and US consumer price data on Friday for signs of runaway inflation that might persuade Fed officials to step up interest hikes to cool down an overheating economy.
"Risk aversion has clearly come down," said Luis Oganes, a sovereign strategist at JP Morgan.
"I think the main scenario for most investors is that the Fed is going to keep its measured gradual pace of rate hikes," he said. "But the fear is always that there will be a very bad inflation number that will prompt aggressive action.
Comments
Comments are closed.