Emerging sovereign debt prices rose on Friday after a US employment report reinforced investors' view that the Federal Reserve is likely to maintain its monetary policy for some time. Brazil's global bond due 2040, considered the emerging market benchmark paper due to its high liquidity, rose 0.250 to bid 132.125 and to yield 6.102 percent.
"The highlight of the day was the jobs number which came in the Goldilocks territory, not too cold not too hot," said Alberto Bernal, emerging markets analyst at Bear Stearns. The US non-farm payrolls report showed a smaller-than-expected rise of 111,000 jobs in January, but it was tempered by an upward revision to the previous two months' data.
"The nonfarm payroll revision doesn't destabilise the optimism that we had over the past couple of days," said Siobhan Morden, Latin American sovereign and local debt strategist at ABN Amro.
"It reaffirms that the Fed will remain on a protracted pause with uneven - but still yet trend - growth and contained inflationary pressures." The Federal Open Market Committee on Wednesday kept its federal funds rate at 5.25 percent. Fed fund futures now show a 76 percent chance of an interest rate cut by year-end compared with 64 percent on Tuesday.
Overall spreads on J.P. Morgan's Emerging Markets Bond Index Plus (EMBI+) narrowed to the tightest level on record to 165 basis points over US Treasuries. "The end result is it is bullish for risk appetite," Morden said. The current scenario is the ideal for emerging markets investors as steady rates would not hurt demand for exports from developing economies and maintain a carry trade play.
"The key here is that the jobs number is consistent with a soft landing of the US economy, which by definition is in line with the stability of US rates," Bernal said. "Therefore there's a continued strong interest for higher yielding assets such as the ones of Latin America." Latin American spreads remained tight on Friday with little fundamental news to move a specific credit.
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