Investors balk at Brazil’s bond yield

Bloomberg

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The 5.875 percent note due in 2019 is the worst performer among the four emerging-market bonds sold in international markets last week, sinking 2.04 cents since they were issued Jan. 6, according to JPMorgan Chase & Co. The Philippines’s $1.5 billion of 10-year notes maturing in 2019 gained 2.2 cents while Colombia’s $1 billion of 10-year bonds rose 0.11 cent and Turkey’s $1 billion of eight-year securities slid 0.44 cent.

Brazil had initially pitched the bonds at about 3.5 percentage points above U.S. Treasuries before widening the offer to 3.7 percentage points, said Cristina Panait, an emerging-market strategist at Payden & Rygel, which manages more than $50 billion in assets. Payden & Rygel declined to buy the bonds in the offer, she said.

"Investors perceived Brazil as pushing things, trying to demand more than market was ready for," said David Spegel, head of emerging-market strategy at ING Financial Bank in New York. "Some of the other bonds by sovereigns were priced more attractively."

Last week’s four sales marked the start of a return to international markets by developing nations seeking dollars after a tumble in commodity exports drained foreign reserves and drove down currencies. Commodities, as measured by the UBS Bloomberg CMCI Index, plunged 48 percent from a July record as the global recession curbed demand for raw materials.

ING forecasts emerging-market dollar debt sales will rise this year to a four-year high of $65 billion.

"If emerging markets are competing with other markets for debt, Brazil should recognize that things are going to get worse before they get better," Spegel said.