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Emerging Market Bonds, Stocks, Currencies Fall on Fed Concern

Emerging Market Bonds, Stocks, Currencies Fall on Fed Concern

March 28 (Bloomberg) -- Emerging market bonds, stocks and currencies dropped, extending a two-week slide, as rising interest rates in the U.S. pulled money away from high-risk securities.

JPMorgan Chase & Co.'s emerging-market bond index fell for the fifth straight day, led by a drop in the price on Brazil's benchmark bond due in 2040. Currencies fell in South Africa, Turkey and throughout Latin America. A Morgan Stanley index of emerging-market stocks fell for the 10th day in 11.

Declines in emerging-market securities have quickened since the Federal Reserve said last week it was concerned inflation was picking up in the U.S., a sign policy makers are considering accelerating the pace of interest-rate increases. The Fed has raised its benchmark rate seven times since June, bringing the rate to 2.75 percent.

The Fed ``statement with its more hawkish language and market concern about inflation is what's really driving things,' said Siobhan Manning-Morden, an emerging markets strategist at Wachovia Corp. in New York.

JPMorgan's emerging-market debt index fell 0.7 percent, its 12th decline in 13 days. Brazil's benchmark bond due in 2040, the most-traded emerging-market security, dropped 0.9 cent on the dollar to 107.7, pushing its yield up to 10.19 percent at 11:20 a.m. in New York. The bond's price has declined 11.3 cents since March 8.

Concern about inflation in the U.S. heightened on March 23 after a government report showed consumer prices rose 0.4 percent in February, the most in four months.

There are ``concerns about higher inflation in the U.S. and concerns about the Fed being behind the curve,' said John Peta, who manages about $400 million of debt, including Brazilian bonds, at Standish Mellon Asset Management in Boston.

The spread investors demand to hold the bonds of emerging- market nations instead of U.S. Treasuries widened 3 basis points today to 397 basis points, or 3.97 percentage points, according to JPMorgan Chase & Co.'s EMBI Plus Index.

Morgan Stanley's emerging-market stock index dropped 0.4 percent today, leaving it down 6.6 percent since March 11.

Two weeks ago, emerging-market assets were among the world's best performers, with bonds returning about 11 percent, including reinvested interest last year, according to Merrill Lynch & Co.'s indexes. U.S. Treasuries returned 3.5 percent.


LINK: http://www.bloomberg.com/apps/news?pid=10000086&sid=ak0UjeidtoMg&refer=latin_america