Emerging debt-Grim US consumer survey leads market lower
By Daniel Bases
NEW YORK, Feb 15 (Reuters) - Emerging market sovereign bonds fell in price on Friday, following the downturn in U.S. equities after a report showed U.S. consumer sentiment is at its lowest level in 16 years.
Emerging market equities also fell in sympathy with the drop in U.S. stocks, making for a glum picture heading into the long U.S. holiday weekend. Latin American currencies trading against the U.S. dollar gave a mixed performance.
Sovereign yield spreads as measured by the benchmark JP Morgan Emerging Markets Bond Index Plus 11EMJ.JPMEMBIPLUS widened by 3 basis points to 275 basis points over stronger U.S. Treasuries.
Morgan Stanley Capital International's benchmark emerging markets stock index .MSCIEF fell 0.33 percent on the day.
"We have not fallen as much as you would think, but this morning's U.S. economic numbers were terrible. We are tracking equities and have been for a while. This isn't rocket science," said a trader at a German bank in New York granted anonymity because the person is not authorized to speak on behalf of the bank.
U.S. consumer sentiment fell sharply in early February to levels associated with previous recessions, dragged down by concerns a bleak economic outlook would raise the unemployment rate, the Reuters/University of Michigan Surveys of Consumers showed on Friday.
The index of consumer sentiment fell to 69.6, the lowest reading since February 1992 and below analysts' median forecast for a preliminary reading of 76.3. The index was at 78.4 at the end of January.
A contraction in manufacturing activity in New York in February, the first time this has occurred in almost three years, added to investor nervousness.
The weak data pulled the benchmark American Standard & Poor's 500 stock index down 0.62 percent .SPX.
"There is a complete lack of conviction in the market. People are in day-to-day trading mode because no one wants to take positions and run the day-to-day event risk," said Paul Biszko, senior emerging markets strategist at RBC Capital Market in Toronto.
"We could be approaching the next big wave of credit market woes, therefore we are sticking with emerging markets that have more limited refinancing needs like Brazil, Russia, and Chile. They are running twin surpluses, don't have external balances and more limited external financing needs," said Biszko.
Strategists point to the weak U.S. economic data, concerns there is another wave of the current credit crisis lurking in the market and a potential restructuring of bond insurers, requiring them to separate their municipal bonds business from riskier operations in New York State.
The trading day, limited in the United States by Monday's upcoming President's Day holiday, when U.S. markets will be closed, started poorly in Asia and continued through European activity.
One indication of investor nervousness was the steep 21.264 basis points widening in European credit spreads on the iTRAXX Crossover index ITCRS5EA=GFI to 551.389 basis points. That is just shy of Tuesday's record wide level, illustrating investors' increased nervousness .
This index, made up of 50 mostly "junk"-rated credits, is used as a barometer of investor risk appetite and can influence investment decisions among emerging market investors.
Brazil's benchmark U.S. dollar-denominated sovereign bond, the most liquid emerging market issue, fell 0.31 point in price to bid 132.313, yielding 5.648 percent BRAGLB40=RR.
Brazil is now the fourth-largest holder of U.S. Treasuries, with $128.8 billion, up 147 percent for the 12 months prior, according to December U.S. Treasury Department data released on Friday. Japan, China and the United Kingdom hold the top three positions. (Editing by Dan Grebler)
