Emerging debt risk spreads tighten

Emerging markets risk spreads tightened on Friday as investors continued to pour money into high-yielding bonds despite a rise in safe-haven US Treasuries yields.
Yield spreads over US Treasury notes, seen as a key gauge of risk aversion, tightened 4 basis points to 167 basis points, while bond prices edged 0.07 percent higher, according to the benchmark J.P. Morgan's EMBI+ index.
Brazil's global bonds due in 2040, the most liquid emerging market paper, rose 0.188 point in price to be bid 132.563 - 1 point below the all-time closing high of 133.500. "We continue to see an imbalance between supply and offer. Despite a relatively week year start for emerging markets, we saw large inflows into external bonds," said Diego Beleza, emerging markets analyst with Prosper bank at Rio de Janeiro.
"As there is no significant supply in the market, we keep seeing the same trend: tightening spreads," he added. Dedicated emerging markets bond funds posted positive net inflows for 16 weeks in a row, even as equity funds begin to see redemption's, according to Emerging Portfolio Fund Research.
Emerging countries' fundamentals remain supported by revenues from commodity exports, despite a recent slump in oil prices, and by data showing the US economy is still growing at a healthy pace. The big exception to the positive emerging markets performance are Ecuadorean bonds, which posted losses of 0.59 percent on Friday, on top of 9-percent plunge in the previous session.
Investors are still awaiting the country's one-week government of President Rafael Correa to unveil details about a promised debt restructuring that many fear will be market unfriendly. Such concerns led Standard & Poor's to cut Ecuador's credit ratings and revise its outlook to negative from stable. S&P warned that another downgrade could be on the way if it becomes apparent that the country's debt strategy continues to be confrontational.
The ratings agency also said it will see as "default" any debt exchange offer proposed by Ecuador that does not take the bonds at full face value and market interest rates. Ecuador's spreads widened 7 basis points to 953 basis points. The country's bonds post losses of 1.21 percent so far in the year, according to the EMBI+.