By Daniel Bases
NEW YORK, Jan 5 Emerging market stocks, bonds
and currencies rose on Monday on expectations of interest rate
cuts in the new year and a major U.S. economic stimulus package
that would help lift the global economy out of its doldrums.
Oil-exporting emerging markets benefited from rising crude
prices as the Israeli-Palestinian conflict escalated while
Russia's decision to reduce the flow of gas to Europe through
Ukraine because of a pricing dispute kept markets on a cautious
Investors returned to the markets in greater numbers after
the New Year holiday. That boosted trading volume from the thin
conditions in which emerging market sovereign bond yield
spreads narrowed 108 basis points and emerging market stocks
rose 14 percent in the span of one month.
"We came a long way in the last two weeks of the year in
very thin trading," said one trader at a New York-based hedge
fund, who added that market positioning has led to dealers
being short of bonds on their books.
"For a trade right now, if you have a 1-year or 6-month
view you want to be short. But if you have a one- or two-day
view, you probably want to be long," the trader said.
The benchmark JP Morgan Emerging Markets Bond Index Plus
11EMJ.JPMEMBIPLUS showed the yield spread, a measure of
investor risk appetite, improve by narrowing 20 basis points to
645 basis points over weaker U.S. Treasuries.
MSCI's emerging markets stock index .MSCIEF rose 3.09
percent to 598.94 while the Latin American stock index
.MILA00000PUS rose 2.99 percent to 2,277.06.
The prospects for new tax cuts in the United States and
Germany helped lift investors' spirits globally. (For more,
click on [ID:nN05322720])
Mexico's peso surged 2.04 percent to 13.495 per dollar at
the central bank's close and 10-year peso bond yields sank to
an 8-1/2 month low of 7.68 percent, down 17 basis points
Stubbornly high inflation in Mexico is being discounted by
investors, fueling expectations of interest rate cuts to help
boost the economy.
"Bonds are rallying quite substantially today. More and
more what is priced in is the central bank will treat this
inflation spike as temporary and start cutting rates sooner
rather than later," said Igor Arsenin, head of Latin America
fixed-income strategy at Credit Suisse in New York.
Ecuador's 2015 sovereign bond was bid higher on Monday. The
government, which declared a default on bonds with a face value
of $3.8 billion last month, is still within the 30-day grace
period to make a coupon payment on this particular issue.
Finance Minister Elsa Viteri told Reuters on Dec. 31 the
government had yet to decide if it will include the 2015 bonds
as part of the restructuring.
"They still have until Jan. 15 to pay the coupon. There was
some relative movement and the 2015s outperformed today. We
didn't see any buying but prices moved," Arsenin said.
According to Reuters data, the 2015 issue, which has a face
value of $650 million, was bid up 2 points in price to 32,
pushing the yield down to 37.372 percent ECUGLB15=RR.
In the gas pricing dispute between Russia and Ukraine,
Moscow cut supply by one-sixth, the amount it accuses Kiev of
illegally siphoning off. The Ukrainian hrvnyia UAH=, Europe's
second-worst-performing currency in 2008 after the collapsed
Icelandic crown, lost 4.29 percent. However trading was
sluggish while both Russian and Ukrainian stock markets were
closed ahead of the Orthodox Christmas on Jan 7.
(For more click on [ID:nL513944])
Ukraine's 2016 Global bond UAHGLB16=RR was bid down 2.25
points in price to 36.063, pushing the yield up to 26.074
percent. Russia's 2030 bond was bid down 0.75 point in price to
86.25, yielding 10.139 percent RUSGLB30=RR.
U.S. crude oil prices CLc1 gained 2.47 to settle at
$48.81 after touching a three week high of $49.28.
(Editing by Dan Grebler)