EM investors cautious after Fed remarks, ahead of payrolls data; spreads mostly widen

By Christine Van Dusen

Atlanta, Nov. 5 – Emerging markets assets had “a cautious open” on Thursday morning as commodities weakened and investors reacted to the increased likelihood of rate hikes next month.

“Fed speak from chair Janet Yellen at a congressional hearing yesterday has been perceived as a signal for a potential ‘lift-off’ in the Federal Open Market Committee’s Dec. 15 to 16 meeting,” a trader said.

It appears that economic data forecasts are good enough to justify multiple interest rate hikes, he said.

“This Friday, all eyes will be on the nonfarm payrolls figures,” he said.

Sovereign bonds from Turkey underperformed, with credit default swaps spreads widening, another trader said.

“Shorts remain concentrated in the belly,” he said. “But even there we are seeing some of those shorts being filled.”

Trading of Turkish banks softened a bit, he said.

This came as Turkish lender Akbank TAS announced plans to issue up to $4 billion worth of bonds, news that is “reminding us of possible supply in the near-term,” he said. “Looking at current five-year senior yields, these are OK levels for issuers, I think, and most likely where we see supply come first.”

In other trading, Dubai Islamic Bank’s perpetual bonds were “soggy,” a trader said, moving 10 bps wider on the week and 35 bps to 45 bps wider on the month.

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