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Bloomberg: Emerging-Market Bond Yield Spreads Fall to Near Record Low

January 26, 2007 | Bloomberg

Emerging-market bond yields compared with Treasuries fell to near a record low as mutual funds moved money into the securities from investors seeking higher returns.

``Demand for emerging-market debt continues to grow quite strongly,'' said Nick Chamie, head of emerging markets at RBC Capital Markets in Toronto. ``The flow of funds will continue to be supportive.''

The average spread, or margin of extra yield, for emerging- market bonds over similar-maturity U.S. Treasuries today fell 2 basis points, or 0.02 percentage point, to 1.66 percentage points, 1 basis point above the record low reached Jan. 17, according to JPMorgan's EMBI Plus index.

Mutual funds that invest in debt issued by developing countries had their 16th straight week of inflows last week, taking in $259 million, according to Emerging Portfolio Fund Research Inc. in Cambridge, Massachusetts.

Brazil and Argentina are taking advantage of the low costs of borrowing to raise funds.

Brazil, with record low costs, yesterday sold $500 million of dollar-denominated bonds maturing in 2037. The government sold the bonds to yield 6.635 percent, or 1.73 percentage points over similar-maturity U.S. Treasuries. The average yield spread on Brazil's dollar bonds over U.S. Treasuries is 1.84 percentage points, within 1 basis point of the record low.

Argentina sold $500 million of dollar bonds in the local market today to refinance maturing debt. The Economy Ministry said it sold the bonds, known as Bonars, to yield 7.71 percent, maturing in September 2013.

The average yield spread on Argentina's dollar bonds over U.S. Treasuries has fallen to 1.89 percentage points from 2.39 points on June 27, 2006, according to JPMorgan.


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