Emerging debt spreads widen

Emerging sovereign debt spreads, an important measure of risk aversion, widened on Friday, while US equities sold off on concerns about banks and inflation.
The bad mood on Wall Street spilled over into Latin American markets, sending stock and bond prices lower across the region. But Mexico's long-dated bonds were an exception, rising in price even as the central bank lifted interest rates to fight inflation.
"It looks like the spread widening is driven mostly by US equities weakness and generalised risk aversion with financial sector concerns and inflation concerns," said Siobhan Morden, Latin America strategist at ABN Amro in New York.
Emerging debt spreads over US Treasuries widened 7 basis points to 257 basis points, according to the benchmark J.P. Morgan EMBI+ index. Colombia's risk spreads remained flat at 180 basis points, though, still supported by Moody's decision to upgrade the country to one notch below investment grade on Thursday.
Overall emerging debt returns declined 0.27 percent on the EMBI+, reducing gains for the year to date to less than 0.5 percent, the EMBI+ showed. Brazil's global bond due 2040, the most liquid of its asset class, lost 0.188 point in price to bid 132.750. Latin American stock markets had sharper losses, with the Brazilian Bovespa index dropping 2.87 percent, its largest single-day decline in three months. The Morgan Stanley MSCI stock index for the region declined 2.3 percent.
Despite the poor regional performance, yields paid by Mexico's long-dated bonds declined as analysts saw the central bank's decision to raise interest rates by 25 basis points earlier on Friday as a "preemptive" move.
"It does not seem to signal a cycle of rate hikes," said ABN Amro's Morden. "And since it is preemptive, it should stabilise medium-term inflation expectations, which means the curve should flatten." Yields paid on Mexico's 10-year domestic bonds fell 2 basis points to 8.980 percent.
Mexico's domestic rates have been rising on the secondary market as higher food and energy prices fan inflation pressures. After its decision to raise overnight rates to 7.75 percent, the central bank warned that inflation could accelerate beyond its forecast in the coming months.