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
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,"
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;