Monday, 26 January 2009

IDEAGlobal Expects 'Turbulent´ Week for Latin American Bond Prices

IDEAGlobal, the New York-based market intelligence company, said in a report out today that Latin American debt paper ''finished off a turbulent week (last week) with losses of 1.5 percent on a category-wide basis,´´ which the shop deemed as ''a positive when compared to the 3.5 percent drops observed in the U.S. equity markets.´´ U.S. stocks will remain a major external price-driver for Latin bonds.

Risk is to the downside for the regional debt markets, said the company, adding that buying Brazil on breaks to the downside would be an interesting alternative for the time being; IDEA views ''Panama and Peru as preferable alternatives to Colombia and Mexico under such scenario of weakness.´´

According to IDEA, ''price drift in Latin America is very subject to the evolution of´´ the U.S. Treasury market in exactly opposite direction to when the drive to lower yields forced by the Federal Reserve rallied the Latin America camp. The shop also warned that comments made by Treasury Secretary Nominee Timothy Geithner about the overvaluation of the Chinese yuan and that country's alleged manipulation of its currency opens space for protectionist actions and ultimately a trade war (IDEA says that ''chatter coming from Davos starting Wednesday might filter into this confrontation.´´) U.S. Treasury yields will therefore remain quite sensitive to the China subject -- remember that the Chinese are the biggest holder of Treasury bonds,) ''pushing the skew to the upside for U.S. rates in detriment to the outlook for Latin bonds.´´

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