Morning Commentary: EM debt weaker amid worsening U.S.-China tensions; Ecuador, Argentina drop

By Rebecca Melvin

New York, June 19 – Emerging markets debt was weaker early Tuesday as global stock markets sold off amid worsening tensions between United States and China over trade, market sources said.

U.S. president Donald Trump threatened to impose tariffs on an additional $200 billion of Chinese products on Monday after China’s decision to raise tariffs on $50 billion of U.S. goods over the weekend. It’s now China’s move, and there is speculation over what actions China might opt to take since it does not import enough U.S. goods to respond in kind to Trump’s announcement.

“It’s a risk-off day,” said Stifel’s director of EM sovereign desk strategy, Victor Fu, adding that one fear is that China will use yuan devaluation as a weapon in the trade conflict.

The yuan was weaker on Tuesday, and a weakening yuan is not good for commodity exporters or China’s competitors in manufacturing, Fu said.

Ecuador’s sovereign bonds were down more than 2 points across the curve on Tuesday, with the Ecuador 2024 notes down about 2 points and the belly of the curve most affected.

Other high-beta credits were also affected, including Argentina’s bonds, which were down 1.5 points to 2 points on the long end, and Turkey was down about a point on the long end.

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