LATAM WRAP-LatAm spreads off wides after choppy trading all week
By Paul Kilby
NEW YORK, Aug 14 (IFR) - LatAm bonds were off recent wides on Friday after a rough and tumble week for the region following China's surprise devaluation of its currency.
Still, a cautious mood prevails among buyside accounts following another week of outflows for the asset class and expectations of a US rate hike in September.
"The China concerns have calmed down a bit and the market has stabilized, but it is still cautious," said a New York based trader. "We have put a cap on spread widening for the time being."
Brazil's five-year CDS was back at 305bp on Friday morning after gapping out to 325bp earlier this week, while the sovereign's 2025s were being quoted at 94.35, up from the 92.25 level seen earlier in the week.
China's decision to loosen the renminbi peg this week may have unnerved markets fretting about the fragility of Latin American fundamentals, but investors see few immediate threats from the Asian nation's shift in FX policy.
"We don't expect a radical effect on the economic dynamics of the region," said Alejo Czerwonko, an economist in the chief investment office of UBS Wealth Management.
Chinese authorities are widely expected to take baby steps to liberalize the exchange rate in an effort to gain reserve currency status rather than undergo dramatic devaluations to bolster growth.
"We will wait for any future signals, but the market doesn't seem to believe we will see significant depreciation pressures," said Kevin Daly, a portfolio manager on Aberdeen's EM fixed-income team. Continuación...