Emerging-Market Debt Takes A Hit On Dubai Debt Concerns
By Kejal Vyas, Of DOW JONES NEWSWIRES
NEW YORK -(Dow Jones)- Emerging-market debt weakened during a shortened
trading session Friday as investors dumped riskier assets on concerns over
Dubai's debt woes.
Credits from Asia to Latin America felt the selling pressure, though assets
recovered some early-session losses as some investors used the dip as a buying
opportunity.
The spread on JPMorgan's Emerging Markets Bond Index Global was 12 basis
points wider at 336 basis points over Treasurys for a loss of 0.85% on the day.
This is the widest spread seen on the key measure since the beginning of the
month.
Weighing on market sentiment was Dubai World, a state-run conglomerate with
interests in property and financial services, which said Wednesday it seeks a
six-month reprieve on debt repayments. This prompted fears over how the
company's creditors, mostly European banks, will fare.
The cost of insuring Dubai's sovereign debt against default surged for the
third day in a row to $664,000 to insure $10 million of debt against default for
five years. The cost of insuring the emirate's debt has more than doubled
Wednesday's announcement.
But with markets in the U.S. closed Thursday for a holiday, a shortened-
session Friday and trading volumes low, strategists at JPMorgan said the impact
of the news was "exaggerated." Investors noted that even markets with little or
no exposure to Dubai were feeling the pain.
High-risk components of the Embig like Argentina and Venezuela took the
biggest blows. Argentina's risk premium rose 13 basis points to 714 basis points
over Treasurys for a loss of 3.51%. Venezuela's spread, meanwhile, gapped 22
basis points to 1,107 basis points over Treasurys for a loss of 2.1%.
Elsewhere, the Bank of Mexico kept interest rates unchanged during its final
monetary-policy decision of the year.
Mexico's risk premium on Embig was eight basis points wider at 208 basis
points over Treasurys for a loss of 0.48%.
Also, the Colombian Congress authorized the country's government to issue up
to $4.5 billion in additional dollar-denominated debt in 2010 and the first
months of 2011.
Colombia will join scores of other debt issuers from the developing world that
analysts expect will flock to raise money on international capital markets next
year. Bank of America Merrill Lynch strategists expect issuance in 2010 to
surpass even this year's surge as market fundamentals continue to improve and
investor appetite for the region's debt grows.
Colombia's spread on Embig was 13 basis points larger at 213 basis points over
Treasurys for a loss of 0.91%.
Developing world stocks trading in New York also felt the pinch, with the Bank
of New York Mellon Emerging Markets ADR index down 2.9%.
-By Kejal Vyas, Dow Jones Newswires; 212 416 2185; kejal.vyas@dowjones.com
(END) Dow Jones Newswires
11-27-091422ET
Copyright (c) 2009 Dow Jones & Company, Inc.
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