Emerging debt-Market climbs as cash continues to flow

Tue June 3, 2003 11:37 AM ET NEW YORK, June 3 (<a href=reuters.com>Reuters) - Emerging sovereign bonds drifted higher on Tuesday, bolstered by the bonds of Brazil, Ecuador and Venezuela as investors' sanguine view of Latin America and the hunt for high yield persisted.

The benchmark J.P. Morgan Emerging Market Bond Index Plus 11EMJ rose 0.37 percent in terms of daily returns as Brazil's share of the index, a hefty one-fifth of the total, climbed 0.3 percent on the day. Brazil's bellwether C bond BRAZILC=RR was unchanged at 89 bid.

The gains came as investors, uninspired by the rock-bottom yields offered by U.S. Treasuries, continued to funnel cash to Latin American debt. This year's flows to emerging markets, also buoyed by optimism over Brazilian President Luiz Inacio Lula da Silva's economic policies and reform agenda, have lifted the EMBI-Plus a heady 19.3 percent since Jan. 1.

While the emerging debt rally has lost some of its momentum in recent weeks, analysts said the view remains rosy.

"Overall, it's mainly positive sentiment" driving the market, said Ricardo Amorim, head of Latin American research at research firm IDEAGlobal. "The big oil producers -- Venezuela and Ecuador -- are performing well, mainly on oil prices."

With crude prices hovering above $30 a barrel amid concerns about inventory levels ahead of the U.S. summer driving season, Ecuador's share of the index added 0.76 percent and Venezuela gained 0.14 percent.

"There seems to be pretty good buy side with Venezuela," said an emerging debt trader. "Although prices haven't moved a ton, there's been pretty good volume in the past day and a half."

Credit agency Fitch revised its outlook for Brazil's ratings to positive from stable. Fitch said the shift reflected indications Lula could be on the way to building the political consensus needed to enact reforms.

Mexico's debt, meanwhile, felt the weight of new supply as the country offered a new 10-year bond denominated in euros, said the trader.

Its spread over U.S. Treasuries -- the premium investors demand to compensate for perceived risk -- widened 1 basis point to 234, while Mexico's share of the EMBI-Plus added 0.34 percent.

Mexico offered the 750 million bond on Tuesday in a deal that was expected to price later in the day. The spread was expected to be 173 basis points over the benchmark swaps curve.

Peru's debt was the session's primary dark spot as political concerns helped sink its share of the index 1.13 percent.

Peru's bonds have had a turbulent ride since President Alejandro Toledo imposed a state of emergency last week in an effort to quell violent protests and strikes by teachers, farmers, health care workers and court workers.