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US payrolls, fund outflows exacerbate LatAm fears

Feb 7, 2014

Weaker-than-expected employment figures and sustained fund outflows add to existing worries for LatAm bond investors

Sluggish job growth in the US on Friday could fuel pessimism on LatAm bond markets, as equity fund flows took another blow and concerns about global economic growth remained strong.

The US on Friday released data showing that 113,000 jobs were created in the country in January, a figure well below expectations and one that could indicate that the country's economy is not growing as fast as expected.

Investors are highly data-sensitive after a volatile start of the year for the market, said sources. But they added that the news on its own would impact bond sales little.

Indeed, CDS levels were resilient. Colombian CDS stayed flat, while that referencing Brazil and Mexico tightened by two basis points. CDS on Argentina and Venezuela widened, however.

"In general it's a little bit tough out there," said an analyst. "I don't think people are happy with that number, but I think that in the LatAm bond market there are number of other issues within various pockets that make things difficult to begin with. Obviously, what's going on with Venezuela, what's going on with Argentina, what economic indicators you have out within Brazil."

The payroll data came as heavy emerging market fund outflows continued in the week to February 5, with investors taking $6.36bn from equity funds and $1.95bn from bond funds, according to Barclays.

The investment bank said global growth concerns, rather than tighter US monetary policy, had driven this year's EM sell-off.

"So far, we haven't seen any signs of a turnaround, so that continues to send a negative signal," said Benoît Anne, head of EM strategy at Société Générale.

Short-term dynamics remained the same, but there were reasons to be optimistic, he said. "We've seen a significant decline in volatility, in currencies for instance," he told LatinFinance.

Banking sources also said that despite the lack of LatAm bond deals in the pipeline, there are signs that investor confidence in Latin America is still solid, especially if companies or countries are keen to add a premium to sweeten the deal and if their books show that their fundamentals are strong.

"Data releases in the LatAm region for the end of 2013 will set the tone for the intensity of economic activity in 2014," Barclays said in a report on Friday. LF



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