Emerging mkt bonds slide on Brazil political feud
Reuters, Thursday, January 07, 1999 at 09:49
NEW YORK, Jan 7 (Reuters) - Emerging market bond prices
slid early Thursday in the New York trading session as traders
tried to assess the political fallout of a 90-day debt
moratorium announced by a large Brazilian state.
Benchmark Brazil "C" <BRAZILC=RR> bonds dropped 3-5/8 to
58-1/8. The decline in other emerging market bond prices was
less severe. Argentina discount bonds <ARGDIS=RR> fell 2-1/4 to
75-3/4s.
Itamar Franco, governor of Minas Gerais, said in a
statement late Thursday that the Brazilian state would observe
a 90-day moratorium on debt payments to the central government.
Wall Street traders sold Brazilian debt and other emerging
market bonds early Thursday, driving prices lower.
"Going into the New Year, Wall Street had started to get
long in anticipation that clients would buy in January. With
the euro going well, the Street got even longer," said Paul
Dickson, sovereign bond strategist at Lehman Brothers Inc.
"Clients did not come calling in huge size in the first
days of this year. When the headline hit yesterday (Wednesday)
with the words 'moratorium,' traders started selling," said
Dickson.
The remote possibility of a debt moratorium of any sort is
anathema to emerging market bond traders, burned from losses
from a debt default by Russia last summer.
Analysts said the suspension of payment announced by
Franco, a former president of Brazil and a heavyweight
political figure, is more likely political jockeying.
The government of President Fernando Henrique Cardoso
responded harshly to the threat from Franco, in turn
threatening to halt transfer of funds to Minas Gerais, Brazil's
third richest state.
A political feud is the last thing that Brazil needs as it
struggles to restore international investor confidence with a
broad fiscal adjustment program, analysts said.
In a research note to clients Thursday morning, Goldman
Sachs analyst Paolo Leme was quoted saying the debt moratorium
from Minas Gerais "adds significant risk in Brazil."
Emerging market traders also took their cue from falling
Brazilian stocks. The Bovespa was down more than six percent
early Thursday.
Copyright 1999, Reuters News Service
|
