Emerging market debt higher on election closure; investors eye Friday's payroll numbers

By Reshmi Basu and Paul A. Harris

New York, Nov. 3 - Emerging market paper made slight advances Wednesday as the U.S. presidential election came to a close without legal wrangling.

The market was "trading well this morning on news on the election that [president George] Bush was the winner," said a trader.

"Pretty much EM is tracking stocks for most of the morning. Futures were up big and stocks opened up with nice gains."

The equity market applauded Bush's re-election but U.S. Treasuries were lower. The Dow Jones Industrial Average ended up 101.32 points at 10137.05. The yield on the 10-year note ended at 4.07%.

"And then it [emerging market debt] kind of trailed off here in the afternoon," the trader said.

In early morning, the Brazil C bond added 1/8 to 99 7/8 bid while the bond due 2040 was up 0.45 to 114 bid. By the close, the C bond gave up those gains and a little more to finish at 99.687 bid.

"We're pretty much where we closed last night in Brazil. The 40s are 113 5/8 bid - that's pretty much where they closed last night," said the trader.

"It's pretty much full circle today [Wednesday]."

The JP Morgan EMBI+ Index tightened two basis points during Tuesday's session.

"It was about five tighter at one point, but it hasn't been moving massively. Volume is on the light side," said a sellside source.

Emerging market debt ended stronger on the quick and decisive finish to the presidential election, according to Latin American debt strategist at Refco EM.

"Brazil was up about a quarter of a point, half a point.

"Mexico traded down, but barely down. Colombia and Venezuela traded higher."

The Mexico bond due 2007 was down 0.05 to 113.45 bid at Wednesday's close while the bond due 2009 lost 0.15 to 123½ bid.

The Venezuela bond due 2027 added a quarter of a point to 1031/4. The Colombia bond due 2009 was up 0.225 to 113.60 bid.

Looking ahead, oil-producing countries suspect that prices of oil will remain at their current level of $50 per barrel, given that Bush will likely not release the strategic reserves, according to the Refco strategist.

In the case of Brazil, the market is concentrating on fundamentals locally, "so that should drive the market a little higher," he said.

All eyes on Friday's jobs data

Now that the election is over, investors are seen focusing on this Friday's non-farm payroll numbers before making any significant adjustments to their holdings.

"I think stuff is going to trade well. Then the big number comes out Friday morning, so I think people will stay close to home until that," said the Refco debt strategist.

"And once that number comes out, I think we are going to turn one way or the other based on that," he said.

Now the U.S. election is over, Friday's number will set the mood for both fixed-income markets and the equity market, according to the Refco debt strategist.

"If the numbers come lower than expected, we should have downward pressure on U.S. equity markets. Treasuries will again regain their trend that we've seen in the last three to four weeks. And emerging markets will tend to benefit."

The strategist added that the payroll numbers would most likely not be that strong.

But another source noted that the market keeps going from one landmark event to another without making up its mind.

"We're going to run out of November if we keep going like this for too long," said the sellside source.

And the primary market is expected to stay quiet, according to the sellside source.

"From a technical standpoint the market should be strong in December.

"But I don't think that people expect to see a lot of new issuance in December.

"And you really only have the first two weeks of December before people start to disappear, given the way the calendar looks this year," said the source.

Asia better

At Wednesday's close in Asia, spreads were generally two to five basis points better.

But there were exceptions.

The spread on the Korea bond due 2008 was unchanged while the bond due 2014 widened one basis point over Treasuries.

The spread on the Korea Development Bank bond due 2013 narrowed nine basis points over Treasuries.

The spread on the Philippine government bond due January 2005 widened 45 basis points over the benchmark curve.

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