Emerging debt spreads narrow on modest US job data

Emerging market spreads tightened on Friday after the US jobs market improved, but not enough in the market's eyes to make the US Federal Reserve hike interest rates more aggressively.
Spreads over US Treasuries on the JP Morgan Emerging Markets Bond Index Plus narrowed to 431 basis points from 440 basis points before the release of the data. Total returns fell 0.17 percent.
"The number is consistent with positive economic growth and a gradual tightening of interest rates," said Alberto Bernal, head of Latin American research for IDEAglobal.
Nonfarm payrolls rose 144,000 in August and almost matched analysts' forecasts of 150,000.
July's gain was revised up to 73,000 from the original 32,000. The unemployment rate dipped to 5.4 percent from 5.5 percent.
The data left financial markets assuming the Fed will raise interest rates at its next meeting on September 21 and probably once again before the year is out. Some had been betting that a very weak report could put the Fed on hold.
US Treasury debt prices slipped on the news.
Brazil spreads narrowed to 513 from 526 before the jobs data, Russia narrowed to 298 from 304 and Mexico tightened to 181 from 189.
Brazil's global 40 bond considered the emerging market benchmark credit, got a slight boost from the data, surging in price to bid 106.563 after previously bidding 105.813.
The spread on the Brazil global 40 against the yield on the 10-year US Treasury note tightened to 573.7 basis points from 594 basis points before the release of the jobs data.
Emerging market investors watch US economic data closely to second-guess future interest rate hikes or cuts by the US Federal Reserve.
Fed rate hikes increase the yield on safehaven US Treasury paper, providing less incentive for emerging investors to bet their money on riskier bonds paying higher yields.
Higher US Treasury yields also make it less profitable for short-term market players to perform "carry trades" - the practice of borrowing money cheaply at low US Treasury rates and betting it on riskier high-yield debt.
"The fact that this is not a blow out number gives some relief to the market, and hopefully it could continue to give some strength to emerging markets," said Siobhan Manning, Latin American debt strategist at Italian investment bank Caboto.