08/07/1998 20:29:07 Emerging mkt debt sinks amid worst weeks of the yr
By Apu Sikri
NEW YORK, Aug 7 (Reuters) - Emerging market bonds are
ending this week having recorded one of the worst performances
of the year, analysts said.
Friday's capped the broad and sustained decline throughout
the week with an erosion of four to five points in some
Russia led the market lower, followed by Venezuela,
according to analysts.
The yield on Russia's benchmark PRINs <RUSPRIN=RR> rose by
a whopping 400 basis points to 1630 basis points from 1250
basis points at the start of the week.
Investor attention is increasingly focused on whether
Russia will be able to pay out outstanding short-term debt,
meet public expenditures and yet maintain enough dollar
reserves to defend the roble.
"As things stand, Russia could possibly face a shortfall
anywhere between $8 billion and $10 billion," said Paul
Dickson, senior sovereign strategist at Lehman Brothers Inc.
About $19.5 billion in short-term obligations, known as GKO
and OFZ bonds, are coming due before the end of this year. Many
foreign investors have taken ruble proceeds from maturing GKOs,
moved them into dollars and deployed them elsewhere, according
to analysts. This has dipped into Russia's external reserves.
If the trend continues, the republic could face a shortage that
would need to be financed either through bank borrowings or the
But bond investors don't have the appetite for another $2
billion to $3 billion in new Russian dollar-denominated debt,
analysts and investors alike said.
In Moscow, Russian Deputy Finance Minister Mikhail Kasyanov
seemed to back off from earlier statements that the country
could issue another $2 billion to $3 billion in new dollar
bonds. He said the amount was a ceiling on how much more the
country could issue and not a mandate for additional
Meanwhile, Michael Carter, the World Bank's country
director for Russia, told Reuters Television that the pace of
reforms would the most influential factor on market confidence
in the republic. "How much breathing room the market gives
Russia will depend on how quickly it is perceived to be moving
with reforms," Carter said.
In Moscow, Martin Gilman, the International Monetary Fund's
senior representative said that "we find the initial results of
what they're trying to do encouraging, but they're going to
have to work very hard this month so that these program
projections can be realized."
Russia's troubles "are unsettling investor sentiment for
all emerging markets," said Amy Falls, economist at Morgan
Stanley Dean Witter.
Meanwhile, in the broader market, Venezuela was among the
worst performers in Latin American credits. The yield on
Venezuela's global bonds due 2027 <VENGLB27=RR> widened to 1012
basis points from 790 basis points at the start of the week.
The price on the bonds dropped a whopping 7-1/4 points Friday
to 58 from 65-1/4 Thursday.
Analysts said the increasing prospect of a victory for
presidential candidate Hugo Chavez in elections in Venezuela
later this year is unsettling investors.
In other benchmark issues, Brazil's "C" <BRAZILC=RR> bonds
declined four points to close at 69-1/2.
(( - N.A. Treasury Desk; 212 859-1562;