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Emerging debt-Argentina plunges in illiquid market
NEW YORK, June 16 (Reuters) - Argentina's sovereign bonds led emerging debt markets lower on Monday after farmers resumed a strike over higher export taxes during the weekend, casting uncertainty over the country's economic outlook.
Overall emerging debt returns declined as high commodity prices continued to fan inflation fears, threatening to slow down the pace of economic growth in developing countries.
"Markets here are really depressed," said Luiz Felipe Brandao, emerging markets director with Arkhe brokerage in Sao Paulo.
"The rising inflation environment is contaminating investors' sentiment and local rates keep going up," he said, adding, however, that trading volumes were low.
Emerging debt risk spreads over U.S. Treasuries, a key gauge of investors' aversion to risk, remained flat at 242 basis points, but bond returns fell 0.22 percent on the benchmark JPMorgan EMBI+ index 11EMJ. Returns are now only 0.6 percent higher since the beginning of the year, according to the index.
Brazil's global bond due 2040 BRAGLB40=RR, the most liquid emerging market paper, declined 0.375 point in price to bid 132.188.
Argentina's bonds posted the largest losses among the 15 countries tracked by the EMBI+, with losses of 2.14 percent, as farmers continued to protest along the main roads, trying to stop grain-loaded trucks from reaching the ports.
Despite a national holiday, Argentina's discount bonds ARGGLB33=RR fell 0.875 point in price to bid 79.500.
Over the weekend, farmers began their fourth strike in three months to protest a tax hike on grain exports that accounts for an important share of the Argentine economy. For details, see [ID:nN14447901].
"If the truck drivers continue with the road blocks, there could be food and fuel shortages this week, which could further dampen domestic sentiment," Credit Suisse's analyst Carola Sandy wrote in a research note.
On the other hand, the performance of Ecuadorean and Peruvian bonds improved after positive domestic news.
Ecuador's risk spreads tightened 10 basis points on the EMBI+ after Finance Minister Fausto Ortiz told investors in New York that a debt default is unlikely, no matter the conclusion of an ongoing audit to determine the legitimacy of the country's foreign bonds. [ID:nN16545562]
"We think that ultimately the political environment will drive debt policy, more than any debt committee findings, which will inevitably cast a dark shadow on the 2000 restructuring," Lehman Brothers' analyst Gianfranco Bertozzi said in a research note.
"Yet, markets should be reassured that the government finds itself extremely liquid and capable of servicing its obligations today, and moreover, that a sober and sensible approach holds in the Finance Ministry," he added.
Peru's spreads also tightened 1 basis point to 145 basis point on the EMBI+ after news that its economy expanded at an annual pace of 13.25 percent in April, as domestic demand replaced the traditional engine of mining exports. [ID:nN16753]
The result was much above the median forecast of 10.5 percent from a Reuters poll of 12 economists and put Peru among the fastest-growing economies in the world. (Editing by Jan Paschal)
