Emerging market bonds firm with all eyes on Brazil
Reuters, Wednesday, November 04, 1998 at 15:58
NEW YORK, Nov 4 (Reuters) - Emerging market bonds climbed
on Wednesday amid expectations that Brazil's Congress will
remove any remaining obstacles to a sweeping reform of the
pension system in a vote later in the day, traders said.
Brazil dollar-denominated bonds were half-a-point to
one-and-a-half points higher Wednesday with the benchmark "C"
bonds <BRAZILC=RR> rising half-a-point to 63, traders said.
Meanwhile, the financial picture in Russia grew yet another
shade darker Wednesday as the government admitted for the first
time that the country may have to restructure foreign debt
payments.
First Deputy Prime Minister Yuri Maslyukov told reporters
Russia's government may have difficulty meeting payments on
external debt of about $3.5 billion this year and another $17.5
billion next year. "Both tasks are excessive for our weakened
economy," he said.
Russia restructured rouble-denominated domestic debt in the
third week of August. That rescheduling resulted in millions of
dollars in losses to a wide spectrum of Western investors.
Russia's dollar debt is already trading at prices of less
than $10, discounting for the possiblity of default.
But some aggressive money managers bought Russian debt in
the last few weeks, paying about $9 on every $100 on the hope
of collecting the next three to four coupon payments and
recovering their purchase price.
If Russia goes ahead and restructures foreign debt,
investors may not recover even that low purchase price for some
time, traders and analysts said.
"People who wanted to clip off a few coupons from Russian
debt may have to wait for some time if the government
restructures the debt," said Paul Dickson, emerging markets
strategist at Lehman Brothers Inc.
Russia's PRIN bonds <RUSPRIN=RR> were lower by half-a-point
to bid at 7-1/2 later Wednesday.
Meanwhile, the modest climb in emerging market bond prices
was met with some selling by U.S. investors, traders said.
"There's one asset manager who's been hitting three or four
dealers at the same time. That's created some supply pressure,"
said a trader.
Emerging market bond prices remain vulnerable to any upset
in the scheduled vote in Brazil's Congress, traders said.
The pension reform bill is seen as the essential first step
in Brazil's efforts to cut a bloated public sector deficit.
The bill is part of a broader plan to save $84 billion in
public money over three years. The government of President
Henrique Fernando Cardoso worked out the program in broad
agreement with the International Monetary Fund.
The IMF is working on a financial package for Brazil
estimated at $30 billion to help the large Latin American
economy overcome an economic and financial crisis made severe
by Russia debt default earlier this summer.
Copyright 1998, Reuters News Service |
