* Argentina CDS spreads narrow after debt swap initiative
* Emerging market stocks mixed, LatAm a laggard
By Daniel Bases
NEW YORK, Oct 23 (Reuters) - Argentina's credit spreads
narrowed while its currency firmed after a new government
proposal to swap defaulted debt resonated with investors, while
weaker U.S. equities dampened demand elsewhere in the region.
Mexico's peso fell sharply on concerns a proposal to raise
taxes to help underpin the country's fiscal position may be
scuttled by opposition leaders. [ID:nN23104986]
In Argentina, there were mixed messages in the market after
the government announced its debt proposal late on Thursday in
a bid to try to clean up the $20 billion in debt still held by
investors who did not accept a 2005 restructuring offer.
Argentina's five-year credit default swaps narrowed by 10
basis points to a bid/ask spread of 920/970, according to
market sources.
The Argentine peso strengthened 0.33 percent to 3.83 per
U.S. dollar ARSB=, according to trades registered between
brokerages.
"People are putting very high odds that this will be
accepted by the market and get through the legislature in
Buenos Aires. That's having a positive impact on Argentine
assets," said Benito Berber, Latin America strategist at RBS in
Greenwich, Connecticut.
While credit spreads narrowed, indicating a small increase
in risk appetite, Argentina's restructured existing 2033
Discount bonds ARGGLB33=RR weakened, according to Reuters
data. The price dropped 0.88 to a 72.50.
Argentina has been frozen out of the international capital
markets ever since its massive debt default in 2001-2002 that
totaled more than $100 billion.
In equity markets, the MSCI Latin American stock index fell
0.12 percent while the broad-based MSCI emerging markets stock
index was up 0.72 percent on the day.
Yield spreads narrowed by 6 basis points to 301 basis
points between emerging markets and underlying benchmark U.S.
Treasuries even as both markets suffered losses, JP Morgan's
Emerging Markets Bond Index Plus 11EMJ.JPMEMBIPLUS showed.
New supply from Brazilian state-owned oil company Petrobras
also pulled away cash from the secondary market. According to
Thomson Reuters IFR publication, the order book for a $4
billion dual tranche 10-year and 30-year debt offering, topped
$12 billion.
The Brazil 2040 bond BRAGLB40=RR, the most actively
traded emerging market bond, was down 1 point in price to bid
133.375, yielding 4.415 percent.
Mexico's benchmark 2019 MEXGLB19N=RR fell 0.125 point in
price to bid 105.75, yielding 5.169 percent.
The Mexican peso dropped 1.40 percent to 13.0725 per U.S.
dollar MXN=MEX01 on concerns the main opposition party in
the Senate, the Institutional Revolutionary Party (PRI), will
try to kill a proposal to raise a consumption tax.
"The debate over what will happen with the VAT hike has put
the brakes on the peso's advance," said Ramon Cordova, a trader
at Base Internacional brokerage firm in Monterrey.
A rejection of the VAT hike in the Senate when it votes
next week could raise the chance of a debt downgrade by ratings
agencies concerned about Mexico's over-dependence on revenues
from waning oil production.
Mexican oil production fell 4.5 percent in September from a
year ago, but was higher than in August. [ID:nN23115092]
Elsewhere, Colombia's central bank meets later on Friday
with expectations tilting toward no change in the benchmark
interest rate, currently at 4 percent.
A large minority, 14 out of the 40 analysts polled, did say
they expect a cut between 25 and 100 basis points in a bid to
revive economic growth and slow the Colombian peso's
appreciation.
(Additional reporting by Jason Lange and Robert Campbell in
Mexico City, Guillermo Parra-Bernal in Sao Paulo and Brian
Ellsworth in Rio de Janierio; Editing by Leslie Adler)
