Emerging sovereign debt prices were unchanged on Friday in a lacklustre market while domestic assets in Latin America attracted most of investors' attention. Brazil's global bond due 2040, considered the emerging market benchmark paper due to its high liquidity, was stable to bid 135.625 and to yield 5.557 percent.
"The market continues to be somewhat soft and lacklustre in terms of volume. We have had a drift back and forth, nothing of real significance within the sovereign side at least," said Enrique Alvarez, head of Latin American debt strategy at IDEAglobal. "The domestic side is getting much more interesting and becoming more dynamic."
In Brazil, the reais-denominated global bond due in 2028 soared 0.625 point to bid 112.938 on Friday, after the Treasury sold 787.5 million reais of the security in a reopening of the issue. The bond benefits from prospects of further currency strengthening, as well as from investors' strong appetite for high-yielding assets.
The real is currently trading at a six-year high. "You should have more fireworks in the domestic market and there should be more interest in local rates, especially the higher yielders such as Brazil and Colombia type markets," Alvarez added. "That is where the overall market focus has shifted until we get much clearer signals of what is to come on the US side and the global front."
Colombia's peso currency closed Friday at 2,013 pesos against the US dollar, its strongest level since May 2000, due to pension fund sales and foreign investment flows. The peso has firmed more than 12 percent over the last year.
Overall yield spreads between emerging market bonds and US Treasury notes, an important gauge of investors' aversion to risk, tightened 2 basis points to 161 bps.
Emerging sovereign debt, however, will continue to trade laterally while US economic growth and inflation data signal otherwise. "The market is heavily tied into the conundrum in the US, which is how weak can we get as far as growth and how many different signals of inflation we can get," Alvarez said.
Emerging market bond funds gained $409 million in the week ending May 9, even after an outflow of $318 million from one large fund, according to Emerging Portfolio Fund Research Global.