unwichtig ist. Da kann einiges im US-Hinterland zusammenklappen - und vielleicht auch bei manchem US-Fond.
Sunday October 7 4:43 PM ET
Emerging Debt Seen Pressured by Argentina
By Hugh Bronstein
NEW YORK (Reuters) - Emerging market sovereign bond prices are expected to be pressured lower this week by investors nervously calculating the risk of an Argentine financial meltdown following its Oct. 14 congressional election.
Against a grim global backdrop punctuated by U.S. military strikes in Afghanistan (news - web sites) in reprisal for last month's hijacked airliner attacks on New York and the Pentagon (news - web sites), recession-racked Argentines go to the polls in seven days amid increasing speculation that their government will have to restructure its debt.
``With the U.S. at war and the election coming up, you could not really imagine a worse time for Argentine bonds,'' said Christian Stracke, chief Latin American debt strategist at Commerzbank Securities.
``Everyone understood the U.S. counterattack was coming, but it's still a negative shock at a time when the market really needs a positive shock,'' he added. ``The fear is that the war will be the straw that breaks Argentina's back.''
Bond trading in the U.S. will resume on Tuesday after being closed for Columbus Day on Monday.
U.S. HITS AFGHANISTAN
The market will also be keenly sensitive to news from Afghanistan, where the United States and Britain on Sunday launched powerful air and missile strikes against command bases, airports and training camps across Afghanistan. President Bush (news - web sites) said the country's radical Islamic rulers were about to ``pay a price'' for supporting terrorism.
``This exacerbates the risk aversion that we've been seeing in the recent weeks,'' said Lenora Suki, sovereign strategist at Santander Investment.
Since the Sept. 11 attacks on the U.S., investors have tended to flee riskier emerging market assets for safer havens.
``The risk is this will lead to broader pressure across emerging markets,'' Suki said. ``Argentina and Brazil have taken the brunt ... but that pressure may start extending into other credits.''
On the positive side, Venezuela, Colombia, Ecuador, Russia and other oil exporter nations may benefit if the war puts upward pressure on oil prices. ``It's difficult to imagine a conflict like this not giving oil prices a lift,'' Suki said.
ARGENTINA BUDGET ANGST
So far as emerging market experts are able to concentrate on the economic fundamentals of the countries they cover, Argentina is expected to remain the week's top story.
Doubts that the government can balance its budget -- a condition of International Monetary Fund (news - web sites) lending -- or continue to make debt payments have weighed on Latin American assets all year. Things took a turn for the worse last month when tax revenues fell 14 percent year-over year, raising pressure on the government to restructure its debt in order to reduce its prodigious interest payment bills.
Argentina sovereign bond spreads widened dramatically last week with the country's portion of the JP Morgan Emerging Markets Bond Index Plus ending at 1880 basis points, a level not seen since Mexico's Tequila Crisis roiled Latin American markets in 1995.
Wider spreads reflect the perception of increased risk as measured against safe-haven U.S. Treasury bonds.
``A significant downside is already priced in and the market is likely to remain cautious and volatile ahead of the Argentine election,'' said Lacey Gallagher, Credit Suisse First Boston director for Latin American economics.
Argentina's Oct. 14 mid-term legislative elections are widely seen as key to how much congressional support center-left President Fernando de la Rua's coalition government will enjoy until the end of his term in 2003. Economy Minister Domingo Cavallo has denied rumors that he will resign after the vote is held.
EYES ON TURKEY
Turkish Economy Minister Kemal Dervis said on Friday that he had requested extra funds from the international financial community, giving rise to some speculation that bilateral aid would be provided by some G7 countries.
So Turkish debt investors will watch this week for news coming out of discussions between Dervis and international financial institutions in Washington.
Turkey won a $15.7 billion IMF-backed rescue program earlier this year to help it recover from a financial crisis that forced it to float its lira currency in February.
U.S. Treasury Secretary Paul O'Neill said on Saturday's Group of Seven finance ministers had agreed institutions like the International Monetary Fund are the best vehicle for helping countries in trouble like Turkey.
``We did talk specifically about Turkey,'' O'Neill said at the closing news conference of the G7 finance ministers meeting.