Emerging sovereign spreads tightened on Friday as continued short-covering by hedge funds insulated the market from a hardy US jobs report that sent Treasuries tumbling. Treasuries plunged on news of a 274,000 jump in non-farm payrolls in April, far above forecasts of 170,000. The report muted talk of a US economic soft patch and raised the specter of faster Federal Reserve rate hikes. Recent resilience in emerging bonds, attributed by traders and analysts to a reversal of short-positioning by hedge funds and optimism over macroeconomic fundamentals in Latin America, shielded the asset class. Although total returns on the J.P. Morgan Emerging Markets Bond Index Plus (EMBI+) fell 0.27 percent, spreads tightened 8 basis points.
"The key word is 'resilience,'" said Vitali Meschoulam, a Latin America analyst at HSBC Securities. "The market right now has tightened about 8 basis points on the back of something that under normal conditions should have made it go the other way.
"Basically, this speaks to the huge shorts that were positioned in the market and the great technical support that that had caused," he said.
"The same thing continues every day, it doesn't matter what bad news we get," echoed a sovereign debt trader. "The reality is, there's still a short base out there. Every time we sell off, we just rally back."
Brazil's global bond due 2040, the emerging benchmark paper, hovered around a bid of 114.813.
Ecuador's sovereign bonds took a hit on Friday after rebounding on Thursday, with total EMBI+ country returns down 1.46 percent.
Most of the selling was concentrated in the country's global bond due 2030, which declined 1.375 to bid 80.625.
Wall Street is scrambling to gauge the macroeconomic mindset of a new Ecuadorean government with a pronounced lean to the left.
But analysts saw no particular reason for the Ecuador price decline, saying market players were simply buying and selling the illiquid credit on daily fluctuations.