Emerging-Market Bonds Halt Slump as Funds Buy Philippines, Indonesia Debt
Indonesian and Philippine dollar bonds rose, paring yesterday’s biggest loss in a month, on speculation Asian debt is still attractive given the region is leading an economic recovery.
The gains helped halt the biggest slump in emerging-market bonds in a year that was triggered by credit rating downgrades of Greece and Portugal by Standard & Poor’s on concern the two countries will struggle to rein in budget deficits. Germany is delaying approval of a 45 billion euro ($59.3 billion) emergency-aid package for Greece.
“Greece will cause some contagion but investors should look at the fundamentals instead of selling everything in emerging markets,” said Paul Chan, chief investment officer at Invesco Asia Ltd. in Hong Kong. “In a beauty contest, Asia is very attractive versus developed markets in the debt-to-GDP area. The question for bond investors is valuation.”
Chan at the unit of Atlanta-based Invesco, which manages $420 billion, is holding off adding to Philippine and Indonesian dollar bonds to wait for higher yields.
The extra yield investors demand to own developing nations’ sovereign bonds over U.S. Treasuries declined three basis points to 2.61 percentage points as of 1:45 p.m. in Singapore, according to JPMorgan Chase & Co.’s EMBI+ Index. The spread widened 21 basis points yesterday, the most since April 20, 2009.
Gains in Asian currencies this year, led by the Malaysian ringgit, Indian rupee, and Indonesian rupiah, are helping boost returns on emerging-market debt, drawing investors from overseas. The spread on JPMorgan’s bond index has narrowed from a 2010 high of 3.27 percentage points in February and compares with 8.65 points at the height of the financial crisis in 2008.
The Philippines’ 6.5 percent 2020 bonds rose 13 cents on the dollar to 109.313, pushing the yield down two basis points to 5.26 percent, according to prices from Royal Bank of Scotland Group Plc. Indonesia’s 2020 5.875 percent notes rose 13 cents to 104.25, with the yield falling two basis points to 5.31 percent.
Yields on both the securities climbed nine and 11 basis points yesterday, respectively, the most since March 22, when German Chancellor Angela Merkel told investors they shouldn’t expect the European Union to agree to assist Greece.
S&P yesterday cut Greece by three levels to a junk rating of BB+ and lowered Portugal two steps to A-.
The extra yield investors demand to own Russian debt over Treasuries narrowed four basis points to 1.83 percentage points, according to JPMorgan’s index. Spreads on Philippine debt dropped three basis points to 1.91 points and declined four basis points on Turkish debt to 2.29 percentage points.
“I remain very positive or constructive on emerging-market spreads as well as the currencies,” said Desmond Soon, a bond manager at DBS Asset Management Ltd. in Singapore that oversees about $22 billion. The Greek debt crisis creates “buying opportunities for the medium term.”