Emerging-market bonds gained on growing confidence measures taken by the Federal Reserve will help ease a credit crisis, bolstering demand for higher-yielding assets.
The extra yield investors demand to own emerging-market bonds over Treasuries narrowed 20 basis points, or 0.2 percentage point, to 2.93 percentage points at 4 p.m., according to JPMorgan Chase & Co.'s EMBI Plus index. A tumble in the 10-year Treasury note, which pushed yields up 21 basis points, helped shrink the so-called spread.
``It seems as though central bank officials are willing to become increasingly aggressive to tackle problems,'' said David Spegel, head of emerging-markets strategy in New York at ING Bank NV.
Investor appetite for developing-nation debt has grown after the Fed last week cut the benchmark lending rate to 2.25 percent from 3 percent and gave securities firms access to the so-called discount window, shoring up financial markets after the collapse of Bear Stearns Cos.
The yield premium on Colombia's dollar debt contracted 25 basis points, the most in emerging markets, to 2.52 percentage points. The yield on the country's benchmark 10 3/8 percent bonds maturing in 2033 fell 6 basis points to 6.76 percent, according to JPMorgan. The bonds' price gained 1 cent on the dollar to 143.25 cents.
Emerging-market bonds also rose as Federal Home Loan Banks were freed to increase their purchase of mortgage-backed bonds by about $150 billion as part of a government effort to pump money back into a market that slumped as the housing crisis deepened.
``It helps the financial sector, which is the main source of concern,'' saidIgor Arsenin, an emerging-market fixed-income strategist at Credit Suisse Group in New York. ``It's positive news.''
The risk of owning Brazil's dollar bonds, among the most widely held emerging-market securities, tumbled today, according to Bloomberg data. Five-year credit default swaps based on the country's debt fell 16 basis points, the most since March 18, to 161 basis points. That means it costs $161,000 to protect $10 million of the country's debt from default.
To contact the reporter on this story: Lester Pimentel in New York atlpimentel1@bloomberg.net
