Emerging Market Stocks, Bonds, Currencies Fall on Risk Concerns
March 16 (Bloomberg) -- Emerging market stocks, bonds and currencies, among the world's best performers this year, fell as rising U.S. interest rates and General Motors Corp.'s warning of a first-quarter loss reduced investors' willingness to take risk.
The CECE index of 25 companies traded in Central Europe lost 4.8 percent, its steepest decrease since July 24, 2002, and fifth straight drop. Currencies from Argentina to Peru fell and Brazil's benchmark bond due 2040 dropped to a four-month low before recovering.
``We're experiencing a bit of a sell-off and risk aversion across emerging markets,'' said Michael Ellis, a member of a team that manages about $500 million in developing-nation debt, including Brazilian bonds, at Standard Bank London Ltd. in London.
The declines were sparked by Detroit-based GM's forecast of its largest quarterly loss since 1992, reducing the appetite for riskier investments in developing nations, said Alia Yousuf, who manages $300 million in emerging market bonds at First State Investments in London. The warning added to concern that higher U.S. interest rates will make it more expensive for emerging- market nations to borrow on international markets.
``The concerns are that as U.S. rates go higher there will be liquidity problems for emerging market borrowers, who have had an easy time so far raising money to meet requirements,'' said Christian Stracke, head of emerging markets fixed-income research at CreditSights Inc. in New York. ``This won't create a debt crisis, but it raises risk.''
Higher U.S. Rates
The yield on the U.S. 10-year benchmark Treasury note, which moves inversely to its price, has risen 0.60 percentage point since its lowest of the year, reached Feb. 9, amid speculation the U.S. Federal Reserve will add to the six interest- rate increases implemented since June 30. Ten-year notes had their biggest weekly drop since May in the five days ending March 11, as oil prices rose near a record and other commodity prices surged.
Crude oil for April delivery rose 90 cents, or 1.6 percent, to $55.95 on the New York Mercantile Exchange. Futures touched $56.35, the highest since the contract was introduced in 1983. Prices are 49 percent higher than a year ago.
Some Fed policy makers said low interest rates may be ``contributing to signs of potentially excessive risk-taking in financial markets,'' minutes from the central bank's December meeting showed.
U.S. corporate bonds also fell after the GM announcement and U.S. Treasuries rose.
U.S. Spreads
The benchmark 4 percent Treasury note due in February 2015 rose 5/8 to 96 9/32 as the yield declined 8 basis points to 4.47 percent.
The average spread for investment-grade company bonds widened 1 basis point yesterday to 80 basis points, the widest since March 3, according to a Merrill Lynch index. The number had been 79 since March 3, the narrowest since August 1998 and the number was 95 a year ago.
Average spreads on emerging-market debt widened for the fifth day in six today to 3.59 percentage points, according to JPMorgan Chase & Co.'s EMBI+ Index. On March 8, investors demanded on average 3.3 percentage point extra yield for emerging market bonds over comparable maturity U.S. Treasuries, the narrowest spread ever.
``We had a fantastic rally in all spread products and now things like GM spooked markets a bit,'' said Edwin Gutierrez, who manages $1.6 billion in emerging market debt at Deutsche Asset Management in London.
Hungary
Czech stocks slid, the biggest fluctuation today of any equity market valued at more than $10 billion. The PX-50 Index dropped 5.8 percent, the steepest decline in more than 3 1/2 years. The benchmark fell for four sessions, the longest streak of declines since July, and losing 9.5 percent in the period. Stocks in Hungary and Poland also slipped.
Hungarian government bonds were the biggest decliner of any government debt market today.
``People are now looking to U.S. investments rather than Eastern European assets,'' said Piotr Pazio, a debt trader in Warsaw at Bank BPH SA, Poland's third-biggest lender. ``U.S. yields are looking attractive.''
In Latin America, Brazil's 10.5 percent 10-year bond fell 0.6 cents on the dollar to 112.75, pushing its yield up to 8.49 percent, according to JPMorgan Chase & Co. Venezuela's 9.5 percent bond that matures in 2027 fell 0.55 cents on the dollar to 100.90, pushing the yield up to 9.16 percent.
Venezuela Debt
The extra yield investors demand to hold Venezuela's 9.25 percent bond due in 2027 instead of a similar-maturity Treasury, or spread, has widened to 4.42 percentage points from 3.99 percentage points at the end of last year. Spreads widen when investors demand higher yields because of heightened concern about default.
The yield on Venezuela's bond due 2027 has climbed to 9.16 percent from 8.64 at the start of last week and borrowing at today's rate instead of last weeks low of 8.64 percent would cost the government $5.2 million in interest expense annually for each $1 billion borrowed.
The top 10 biggest currency decliners against the U.S. dollar today are all in emerging markets. |
