Risk markets rebound from lows; Azerbaijan in focus; Brazil minister resigns, spreads widen

By Christine Van Dusen

Atlanta, Dec. 21 – Emerging markets investors added some risk and duration on Monday, ahead of the Christmas holiday, and focused some attention on Azerbaijan and Brazil.

“Risk markets finding a small bottom here,” a London-based trader said. “We are rebounding out of the lows here.”

Azerbaijan was in the news after the central bank announced it would shift to a floating exchange rate to protect the country’s foreign exchange reserves at a time of greater “foreign economic shocks,” according to a report from Schildershoven Finance BV.

The sovereign’s 2024s were down one point as a result but still managed to bounce two points off the lows “as the market realizes that most of the news was already priced in,” a trader said. “The consequences should be seen as overall positive.”

The devaluation is good news because, he said, it means “less reserve-burning” and it will support foreign exchange.

“We should see some suppression in imports that bolster trade balances,” he said.

He recommended investing in the State Oil Co. of the Azerbaijan Republic (Socar), which was recently taken off of credit-negative and receives solid support from the sovereign.

Looking to Brazil, the markets were reacting to the Friday resignation of Finance Minister Joaquim Levy, with five-year credit default swaps spreads and bonds opening weaker, a New York-based trader said.

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