By Lester Pimentel
March 27 (Bloomberg) -- Emerging-market bonds were little changed amid speculation more financial institutions will face writedowns, making investors more adverse to the risk of holding higher-yielding securities.
The yield to the 2015 call date on Brazil's 11 percent bonds due in 2040, one of the most widely traded emerging-market securities, held at 5.38 percent at 4:06 p.m. in New York, according to JPMorgan Chase & Co. The bond's price was 133.75 cents on the dollar.
Investors shunned developing nation debt after a report from Oppenheimer & Co. analyst Meredith Whitney said Merrill Lynch & Co. and UBS AG probably will report first-quarter losses because of writedowns on the value of debt securities.
``As long as the global setting remains risk averse, it's going to be hard for emerging markets to rally,'' said Cristina Panait, an emerging-market strategist at Los Angeles-based Payden & Rygel, which manages more than $50 billion in assets.
The yield premium investors demand to own emerging-market bonds over Treasuries narrowed 4 basis points to 2.95 percentage points, according to JPMorgan's EMBI Plus index. The so-called spread on developing nation debt is now almost equal to that for U.S. companies with single-A ratings, Merrill Lynch & Co. said in a research note today. The firm's emerging-market debt index shows a yield difference of 2.93 percentage points while its investment-grade index has a spread of 2.98 percentage points.
Credit Default Swaps
The risk of owning Argentine bonds climbed for a second day after protesters took to the streets in support of striking farmers as PresidentCristina Fernandez de Kirchner confronts the biggest threat to her three-month-old government. Farmers opposed to rising export taxes began the third week of their strike today, blocking major highways across the country and prompting shortages of meat and dairy products.
Five-year credit default swaps based on Argentina's debt increased 7 basis points to 564 basis points, the highest since March 17, according to Bloomberg data. That means it costs $564,000 to protect $10 million of the country's debt from default.
``We believe the administration's governing style remains characterized by confrontation and unilateral decisions, something that has discouraged investors from adding Argentine risk despite solid fundamentals,'' Merrill Lynch said in a separate note to investors.
Mexico plans to sell securities that will allow investors to swap government bonds denominated in foreign currencies for local debt this year in a bid to make the country's finances less vulnerable to declines in the currency.
Russian Credit Ratings
Investors will be able to exchange bonds denominated in dollars, euros, German marks and Italian lira due 2009 to 2015 for peso-denominated securities due 2014, 2017 and 2036 in October. The warrants will allow investors to swap foreign- currency securities maturing between 2015 and 2034 for domestic inflation-linked debt due in 2017 and 2035, according to investors who received the terms of the proposal.
Russia's debt was placed on review for a possible credit- rating increase by Moody's Investors Service as the country's economic expansion enters a 10th year and debt levels decline.
The review of Russia's Baa2 government bond rating, the second lowest investment-grade level, will also take into account ``the likelihood of macro-policy continuity'' under President-elect Dmitry Medvedev, Moody's said in a statement today. Medvedev will succeed Vladimir Putin after winning Russia's presidential election on March 2.
-- With reporting by Bill Faries in Buenos Aires and Valerie Rota in Mexico City. Editors: Michael Weiss, Dave Liedtka
To contact the reporter on this story: Lester Pimentel in New York atlpimentel1@bloomberg.net
