Emerging debt-Reach for yield pumps prices higher

Thu June 5, 2003 01:14 PM ET NEW YORK, June 5 (<a href=reuters.com>Reuters) - Investors poured money into high-yielding emerging market sovereign bonds on Thursday in a bid to compensate for very low interest rates in the developed world and jittery U.S. stock markets, traders and analysts said.

Total returns jumped 0.85 percent, according to JP Morgan's Emerging Markets Bond Index Plus.

"It smells like liquidity driven by the expectation that official interest rates in the G7 are going to stay low. So the 'Let's go chase yield' trade is still on," said Mark Siegel, managing director at David L. Babson & Co., a member of the MassMutual Financial Group.

Benchmark Brazil C bonds BRAZILC=RR rose 1-1/4 to bid 91-1/2, having skyrocketed more than 25 points since the start of the year.

"All of a sudden Brazil is off to the races again for no particularly good reason," one emerging debt trader said. "We are trying to look for the catalyst and not finding it," the trader added. "The simple answer: somebody got some money, so they're spending it."

Thursday's gains added to total returns of 20.8 percent market-wide since Jan. 1. Brazil has gained an eye-popping 42.7 percent in the same period.

Even politically volatile Venezuela, suffering a deep recession, joined Thursday's rally by rising 0.6 percent.

"A main theme is credits playing catch-up," the trader said. "Credits that had lagged over the last three months of this run-up, such as Venezuela, are getting pushed up."

Venezuela has underperformed the wider emerging bond market so far in 2003, rising 13.6 percent in total returns, about 7 percentage points under the market average.