Emerging market sovereign debt yield spreads widened marginally on Friday with investors nervous given the lack of direction in core global financial markets. The benchmark J.P. Morgan Emerging Markets Bond Index Plus yield spread widened by three basis points to 265 basis points over stronger US Treasuries.
A decline in US stock prices did not help investment sentiment and record high prices for crude oil is intensifying the debate over how emerging market governments are handling increased inflation pressures.
Rising inflation and food shortages have caused some emerging market countries to slap new taxes on exports and institute capital controls, unnerving investors who are concerned about access to their assets. "There is a slightly weakish tone. I think investors remain unsure of the next real move on markets globally," said Paul Biszko, senior emerging markets analyst at RBC Capital Markets in Toronto.
Biszko said the caution stems from the choppy nature to global asset price movements where a few days of rallies are followed by a few days of losses. He also highlighted some concerns over China's April exports data due on May 12. If the growth is less than the market consensus of 20 percent versus the 30.6 percent in March, alarm bells for global growth might be triggered.
Venezuelan spreads widened the most on Friday, although technical factors are likely the cause as local investors in the last 48 hours have been able to sell some of the $4 billion worth of international bonds sold late last month. Investors are selling the bonds in the secondary market in order to get their hands on US dollars to protect themselves from rising domestic inflation.
Venezuela's spreads on the EMBI+ widened by 14 basis points to 655 basis points while total returns fell 1.27 percent. Venezuela's five-year credit default swap spreads widened by 12 basis points to 617 basis points, another illustration of a decline in investor sentiment.
Venezuela's benchmark 2027 Global bond fell 1.187 points in price to bid 88.688, yielding 10.637 percent. Adding to the negative tone was confirmation by a US intelligence official that Venezuelan President Hugo Chavez's ties to Colombian rebels were deeper than previously thought, according to information pulled from computer files taken off a dead guerrilla leader. Chavez says the files are fake.
"The computer files are adding to some of the selling pressures, but this trading is more technical due to the new issue being unloaded in the market," said one trader in New York.
Argentina's benchmark discount bonds were down just 0.063 points in price to bid 79.75. Its spreads on the EMBI+ narrowed by 4 basis points to 566 basis points despite a second strike by farmers in less than two months over a new tax system on agricultural exports.
"Nobody wants to go into the weekend with a short position were a deal to materialise over the weekend with the farmers and the government because those spreads are going to move tighter, I suspect, and I think most of the market does as well," said RBC's Biszko.
Turkey's benchmark 2030 bond slipped 0.13 points in price to bid 153.125, yielding 7.053 percent. Its EMBI+ yield spread widened by six basis points to 305 basis points while five-year CDS spreads widened by three basis points to 250. On Friday the International Monetary Fund approved the final review under Turkey's $10 billion loan program ahead of its expiration on Saturday but the IMF said it has not heard from Ankara on whether it will seek another IMF deal.
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