2000-04-11 The trend
Daily Brady Bond Trading Commentary
Tuesday April 11, 2000
The trend of taking direction from U.S. tech stocks is intact, though emerging markets debt showed some ability to de-couple Tuesday.
We continue to see trading as dealer-lead, as customers are content not to add on weakness at the moment. We do think that doing so, particularly in Mexico and Brazil, will lead to positive results over the medium term.
But clearly EM debt is not under pressure in isolation. U.S. agency spreads have widened out to record levels, as have swap spreads, while investment grade and high-yield corporates under-perform Treasuries as well. This phenomenon has materialized largely because of a set of technical factors, including the retirement of U.S. government debt, that have sent Treasury yields plummeting in the face of several Fed interest rate hikes.
Barring the emergence of a true deterioration in credit (most emerging market countries are in a period of positive ratings moves) or an equity meltdown, we believe this disconnect will normalize as well over the medium term.
Contributed by
Credit Lyonnais Securities (USA) Inc.
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