14 October 2013



Not just the comic, but this market! Making a sluggish transition from quite a humdrum summer, to the shutdown in the U.S., has been painful to say the least! In between that – late September- there was definitely a marked change of pace. EM bond funds saw inflows again, in fact after 17 consecutive weeks of outflows (since Bernanke’s taper talks), with $560 million flowing into emerging market bond funds at that point (Wall Street Journal). I’m sure you saw Uncle Ben’s part to play in this once again, as he dovishly went back on plans to reduce the pace of stimulus.

Market Summary

Risk-markets took great pleasure with his last announcement, and fixed income had a field day. Even here in the region, Petrotrin bonds were well bid especially since being added to JP Morgan’s Emerging Market Bond Index. New issues also came back with a bang (more on that soon) due to the taper-delay.

Janet Yellen’s nomination for the Fed gave markets a slight buzz, but came across as confirmation rather than real ‘news.’ I know, you’re wondering what’s the point of the unsolicited recap? Well, the question I’d pose to you, is whether we will see fund/ portfolio managers continue to sell EM holdings (especially on the long end)?

UST 30-yr Yield (Jun 2008 – Present)

UST 30-yr Yield (Jun 2008 – Present)

Interest Rate Trajectory

I feel really comfortable in saying that rates are quite low, based on historical yields. We all know what happened in 2008, and today’s yields are below those levels for the majority of that year. Even if the debt ceiling is raised as part of the shutdown resolution, everything points to an upward trend in the medium to long term.

New Issue Market

That window of time between the end of summer and the US shutdown, gave investors and issuers some much-needed breathing room. In EM we saw some ‘slam-dunks’ like Ecopetrol’s (Colombia) 3-tranche deal – the 30yr now 11pts higher than issue (in the less than a month!). Other solid new issues included Brazilian Gov’t Agency – Banco Nacional de Desenvolvimento Economico e Social, and most recently Millicom’s 8-year offering. Conversely, some issuers got it very wrong … Barbados being the chief offender with a scrapped tender offer and postponed new deal.


So, what next? Do you play the long term trend (rising rates), or knee-jerk your portfolio weights around until the next big news item? Simply put: Stay the Course! While treasuries have come off significantly since April, we again point out just how low rates are within a historical context. Of course, this isn’t a recommendation to have your entire portfolio in short duration securities, or to remain solely in cash. Consider a 75/15/10 mix of short/medium/long names, which won’t knock the socks off next year’s financials, but allows for some agility should these ‘pockets’ of optimism arise (and they will!).

For more on “knee-jerk-onomics” and other facts and figures about the market contact us at 1 – 868 – 628 – 1175 or email us at info@nullfirstlinesecurities.com to share your views or ask any questions.


Gerard Stephens

Account Executive

Sales and Trading

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