2000-05-16 Debt Market discounted 50bps

Daily Brady Bond Trading Commentary

Tuesday May 16 2000 

With debt markets having discounted for several weeks a 50 bps rate hike by the FOMC, Tuesday's tightening announcement had little impact on emerging markets debt prices.

In fact, the "relief rally" that began Monday continued, though the market appeared to be taking direction from equities. The Fed's comments, if anything, indicated that the market can look forward to further tightening, as the imbalances between supply and demand remain a concern. The longer term impact on Latin debt markets depend upon how the U.S. economy responds in coming months and on whether or not investors regain their appetite for risk.

Sentiment about Argentina will be a major factor for the next several months, as the country's cost of foreign capital has become more expensive in recent weeks.

Higher U.S. interest rates and their impact on the peso are also likely to worsen the country's competitive position, particularly versus Brazil.

Contributed by

Credit Lyonnais Securities (USA) Inc.

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