Emerging debt-Brazil rises, fueled by budget surplus figure

Source Reuters, 03.28.03, 1:34 PM ET

By Susan Schneider NEW YORK, March 28 (Reuters) - Emerging sovereign debt edged higher on Friday as a robust February budget surplus figure fired up Brazilian bonds and the initial panic over Venezuela's planned debt restructuring faded. J.P. Morgan's Emerging Market Bond Index Plus added 0.49 percent in terms of daily returns, bolstered by a 1.07 percent jump in the share of market heavyweight Brazil. Venezuela recouped some of this week's losses as its DCB bond notched gains of 1.125 points to 69.625 bid, a move that helped lift the country's EMBI-plus share by 1.49 percent. Brazilian bonds trekked higher after the central bank said the public sector posted a primary budget surplus of 7.6 billion reais ($2.3 billion) in February. The figures put Brazil on track to beat its first-quarter surplus goal with the International Monetary Fund and should serve to reassure investors the country has the cash to pay its debts. The rosy mood toward Brazil, where the currency, the real, also strengthened against the dollar, was coupled with an ebbing of fears about Venezuela. The oil-rich nation said Wednesday it would attempt to ease its debt load with a voluntary swap, but uncertainty over the form of such a deal battered Venezuelan bonds in the past two sessions. "There's been some good local news in the past few days and people have traded that off with the Venezuelan news now that Venezuela has calmed down," said an emerging debt trader. "Venezuela is still way off, but nothing worse has happened." Venezuelan President Hugo Chavez touched off the panic when he told small business owners that the nation, enduring a fierce fiscal crunch in the wake of a two-month opposition strike that choked off its vital oil production, would seek to restructure and renegotiate its foreign debt. Finance Minister Tobias Nobrega later clarified the comments and said the government was not planning a moratorium or a forced restructuring of the debt but planned to offer a voluntary swap. "If they go into restructured default, there's going to be some sort of knock-on effect (in the broader market)," the trader said. "It might be small or short, but it's going to affect the perception of our market in general." Meanwhile, investors continued to take heart from pushes for reforms in Brazil by President Luiz Inacio Lula da Silva, who took office at the turn of the year. Brazil's bonds are up nearly 19 percent so far this year on optimism about Lula, who pledged on Thursday to send Congress his pension and tax reforms in April. The planned overhauls, along with Lula's repeated promises of austerity, have helped win over investors who had worried about his calls for debt renegotiation in previous campaigns. "It's a relatively quiet day but there's definitely a firmer tone," said the second trader. "There is more talk about reforms in Brazil, sooner rather than later, and Venezuela is hanging in there." TURKEY CLIMBS Turkey's bonds also crept higher ahead of the weekend as investors awaited further news on the U.S. offer for up to $8.5 billion in war financing for the country's frail economy, sure to be battered further by financial fallout of armed conflict in neighboring Iraq. Turkey's share of the broader EMBI-Plus rose 1.63 percent on the day, a tiny recovery from a string of fierce losses spurred by concerns about the state of Turkish-U.S. relations after Turkey refused to let Iraq-bound U.S. troops use its territory. The refusal killed a U.S. offer of some $30 billion in aid and loans, helping to send Turkey's share of the index a massive 15 percent lower this month alone. This week, however, the White House offered Turkey up to $8.5 billion in loans and guarantees, although the package will need the approval of Congress, where many members are upset at Turkey's decision not to allow troops.