Battered EM debt market limps into weekend amid constrained liquidity; lira drops again

By Rebecca Melvin

New York, Aug. 17 – Emerging markets debt “limped into the weekend” on Friday, with bonds under pressure after a bounce in the previous 24 hours to 36 hours and as the Turkish lira resumed a downward trajectory, a London-based trader said.

The lira turned lower again after recovering for three sessions following a record low notched on Monday.

Meanwhile, late Friday S&P’s and Moody’s Investors Service downgraded the sovereign.

The downgrade, S&P said, reflects the rating agency’s expectation that the extreme volatility of the Turkish lira and a projected sharp balance of payments adjustment will undermine Turkey’s economy.

Turkey’s bonds and emerging markets debt in general were under pressure ahead of the rating agency news.

“Spreads are struggling, commodities are still for sale, rates are better bid, and Turkey is 20 to 25 wider,” a trader said, referring to a 20 basis points to 25 bps wider move for the week for Turkey’s sovereign debt.

“We tried a little bit of a bounce,” a trader said regarding Thursday’s and early Friday’s market, “with guys nibbling on some of the stuff that really got beaten up.” Demand had been better for some corporate names including Turkcell Iletisim Hizmetleri AS, Koc Holding AS and Turk Telekomunikasyon AS, among others, he said. These were the higher credit names.

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