Emerging market spreads narrowed on Friday as traders said softer US economic data sparked a rally in Treasuries that spilled over into emerging debt.
A record US trade deficit in June, benign producer price inflation and deterioration of consumer sentiment in August, sparked a jump in Treasury prices as traders saw the data lessening the Federal Reserve's need to raise interest rates at a fast pace.
On the J.P. Morgan Emerging Markets Bond Index Plus, a gauge of emerging market default risk, spreads over comparable Treasuries narrowed seven basis points, while total returns rose about 0.6 percent.
After a slew of US data early on Friday, investors expect trading to slow down. "There will be no big buying or big selling in the emerging debt market especially in the next two to three weeks because of the summer," a trader said.
"Unless there is an event large enough to move the market, people are pretty comfortable with the risk. Treasuries are giving you a nice backdrop to feel comfortable with that risk," the trader said.
Higher prices on safe-haven US Treasury bonds lower their yields, making higher-yielding, riskier emerging market bonds more attractive. Lower Treasury yields also make it easier for investors to borrow cheaply to invest in emerging market debt. The producer price index rose 0.1 percent in July as did the core index excluding energy and food, while the June trade deficit ballooned to $55.8 billion, well above expectations and a new record. Consumer confidence fell as expectations for the economy worsened. Venezuela's benchmark global bond due 2027 rose 0.750 basis points, to yield 10.145. Its spread stood at 513 basis points over the US 30-year Treasury bond. Venezuelan debt spreads tightened by four basis points to 562 on the EMBI+, while its total returns rose 0.51 percent on the back of soaring crude oil futures.
Comments
Comments are closed.