September 10, 2008

EmergingMarket Bonds Fall on Commodity Decline Lehman Plunge

"Emerging-Market Bonds Fall on Commodity Decline, Lehman Plunge "

By Lester Pimentel

"Sept. 9 (Bloomberg) -- Emerging-market bonds fell, pushing yields relative to Treasuries near their widest since June 2005, as slowing economic growth in the U.S. and Europe saps demand for commodities."

"The extra yield investors demand to own developing nation debt rather than Treasuries widened 17 basis points, or 0.17 percentage point, to 3.32 percentage points at 4:04 p.m. in New York, according to JPMorgan Chase & Co. Oil-exporter Ecuador led declines, with the so-called spread on the country's bond's swelling 64 basis points to 8.20 percentage points."

Emerging-market bonds reversed yesterday's gains as commodities such as crude oil and wheat declined amid flagging global growth. The securities extended losses as investors shunned higher-yielding assets after shares of Lehman Brothers Holdings Inc. tumbled.

"``It's just not a good market when Lehman falls 40 percent,'' said Alberto Bernal, head of emerging market research with Bulltick Capital Markets in Miami."

Lehman fell as much as 44 percent to $8 per share in New York Stock Exchange composite trading.

"Crude oil dropped as much as 2.3 percent to a five-month low of $103.71 per barrel in trading on the New York Mercantile Exchange. Wheat fell as much as 3.3 percent to $7.19 a bushel, the lowest since Nov. 27, 2007, on the Chicago Board of Trade."

"Argentine debt also posted losses. The country's securities yield 7.38 percentage points more than Treasuries, up 44 basis points from yesterday, according to JPMorgan. The spread on debt sold by Venezuela, Latin America's biggest oil exporter, widened 13 basis points to 6.86 percentage points."

`Negative Panorama'

"There's ``a negative panorama on global growth and commodities prices,'' said Enrique Alvarez, who heads Latin America fixed-income research at IDEAglobal Inc. in New York."

"The risk of owning Venezuela's bonds rose to the highest since July 14. Five-year credit-default swaps based on the country's debt climbed 17 basis points to 6.31 percentage points, according to Bloomberg data. That means it costs $631,000 to protect $10 million of the country's debt from default."

"Credit-default swaps, contracts conceived to protect bondholders against default, pay the buyer face value in exchange for the underlying securities or the cash equivalent."

To contact the reporter on this story: Lester Pimentel in New York at

"Last Updated: September 9, 2008 16:22 EDT"

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