• ACI Russia

08/06/1998 20:02:55 Emerging mkt debt lower, Russia leads the decline

By Apu Sikri

NEW YORK, Aug 6 (Reuters) - Russia's dollar debt slumped to

record low levels on Thursday amid a general downturn in emerging

markets debt.

Russia's benchmark PRINs <RUSPRIN=RR> dropped 2-1/2 points to

37-1/2, the lowest level since they were structured from

non-performing loans last December. "It is the lowest trading

level for the PRINs," said Gretchen Rodkey, sovereign bond analyst

at Bear Stearns & Co.

The sharp decline followed "some fresh selling from

institutional investors," said Paul Masco, head emerging markets

trader at Salomon Smith Barney Inc.

Some hedge funds and proprietary trading desks have cut

investments in Russia's dollar-denominated bonds amid lack of any

fresh signal that the country's fiscal situation is improving.

In the broader market, Latin American debt also declined

across the board. Brazil's benchmark "C" bonds <BRAZILC=RR>

dropped 1-1/8 to 73-1/8 late in the day.

In Asia, a weakening South Korean won brought pushed out

yields on Korea Development Bank (KDB) bonds due 2008 to 460 basis

points over Treasurys.

Demand from South Korean corporates for the U.S. dollar has

been weakening the won, traders said. Several Korean corporates

have dollar-denominated bonds coming due which they must retire.

The South Korean won traded at 1,328 to the dollar at Thursday's

close vs 1,260 late Wednesday.

But Russia continued to dominate investor concerns.

Some money managers said that Russia's determination to

dump more dollar-denominated bonds in the international capital

markets is a disappointment. A document circulated at a cabinet

meeting in Moscow put the ceiling on total foreign debt

issuance by Russia at $14 billion. Since the country has

already sold $11.3 billion so far, it will likely bring another

$3 billion in new supply later this year, investors surmised.

"There's very little appetite for new Russian bonds," said

William Nemerever, portfolio manager at Grantham May Van

Otterloo. "We hold Russian bonds, but we would not add to our

position. I think a lot of investors feel the same way," he

said. "We doubt that the market can absord another $3 billion,"

he said.

Some technical factors are also hurting prices on these

securities. Some investors in Russian stocks have been taking

short position in Russia's benchmark bonds as a rough hedge to

equity holdings, according to money managers. Those short

positions are putting further downward pressure on Russian


(( - N.A. Treasury Desk; 212 859-1562;


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