Emerging debt bonds fell on Friday, led downwards by Argentina and other high-volatility credits over global market jitters sparked by US subprime housing woes, analysts said. Overall emerging market returns fell 0.30 percent, reversing Thursday's 0.23 percent gain, according to J.P. Morgan's Emerging Markets Bond Plus Index (EMBI+).
Emerging bond spreads over US Treasuries widened 7 points to near a four-month high of 180 basis points, as investors world-wide turned their back on credits with a taint of risk. The Latin American credits that fell furthest were those on the low end of the speculative-grade junk bond rating scale, reflecting increased perception of risk.
"The fall in emerging market bond debt is not surprising because of the suprime moves," said BBVA analyst Jerome Weiss. "Higher beta volatility credits are falling more in this investment climate."
Ecuador, which has threatened to default on debt it considers illegally contracted, saw a sharp fall in its debt. Year-to-date returns on its bonds fell 0.91 percent on Friday, EMBI+ data showed. Argentina's bond returns fell 1.56 percent. The percentage fall, as gauged by the EMBI+, reflects how much an investor would have lost on bonds held at the start of 2007.
The cost to insure Argentina's debt also jumped. Five-year credit default swaps rose by 21 basis points to 278 basis points according to Barclays Capital. That means an investor would have to pay $278,000 annually to insure against $10 million in default.
Argentina emerged from a three-year $100 billion debt default in 2005. It returned to foreign capital markets with some success, but jitters are resurfacing as investors shy away from riskier assets world-wide.
The dive in bonds backed by subprime mortgages, which are made to riskier borrowers, has rippled around the globe. In the United States, the benchmark ABX subprime mortgage index fell to a record intraday low at 42.5. In Europe, the Itraxx Crossover index, which measures the cost of default insurance for European low grade borrowers, hit a fresh contract wide of 326 basis points.