Adamant: Hardest metal
Tuesday, June 24, 2003

Emerging debt-Market skips higher, buoyed by Treasuries

Fri June 13, 2003 01:45 PM ET
NEW YORK, June 13 (Reuters) - Emerging sovereign bonds skipped higher on Friday on the back of a new leap in U.S. Treasury prices, piling more gains onto this year's already sizzling returns of some 23 percent.

The benchmark J.P. Morgan Emerging Market Bond Index Plus 11EMJ climbed 0.74 percent on the day as market heavyweight Brazil jumped 0.92 percent. Brazil's heavily traded C bond BRAZILC=RR notched a 0.125 point gain to 92.125 bid.

U.S. Treasury prices extended their march skywards after data showed a surprise slump in U.S. sentiment, fanning speculation that the U.S. Federal Reserve could cut interest rates by a half point this month instead of the quarter point widely expected.

The rate talk helped sink U.S. Treasury yields to fresh record lows, in turn buoying the emerging debt market, where bonds are gauged by the premium investors demand over comparable U.S. Treasures to compensate for risk.

"The U.S. Treasury bond is up almost half a point, so that's driving the rest of the market higher in price terms," said Christian Stracke, head of emerging markets strategy at research firm CreditSights.

Emerging debt has been in fierce demand this year as investors hunt for yields above the rock-bottom ones offered by U.S. Treasuries. Wall Street's optimism for the fiscal policies and reform agenda of Brazilian President Luiz Inacio Lula da Silva has also fired up the debt, translating into strong gains market wide and a dizzying 46.6 percent return for Brazilian bonds since Jan. 1.

This sentiment has also bolstered Brazil's new $1.25 billion global bond BRAGLB13=RR , sold earlier this week. It notched a heady gain of 2.125 points to 101.875 percent of face value on Friday alone.

"There's strong account buying across the board with little supply," paving the way to a strong performance in new issues, said an emerging debt trader.

Venezuela's bellwether bond, however, bucked the day's sanguine trend, hurt by sliding world crude prices and worries about the repercussions of any effort to swap the nation's debt, said CreditSight's Stracke.

The country's finance minister has said the government is looking to ease a heavy concentration of debt payments this year through possible swaps, direct credits from banks and financing for specific projects.

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