A Bump in the Road

Argentina bonds were one of the best performing investments of 2010, returning 38%, so it was inevitable that at some point investors would take profits and that is exactly what they've been doing these past few days. Bonds today were generally down about 1 1/2 points. Venezuela bonds also came under attack, dropping about 3/4 point on top of yesterday's losses which were partially the result of news that Chavez wanted BBVA's Provincial banking unit out of the country. Traders sold Brazil sovereign bonds too, partly due to the turn in Street psychology but also due to the news that Banco Panamericano would need a larger bailout than previously announced. Banco Panamericano bonds fell sharply today, much like they did a month ago when the news first hit that the bank was severely under capitalized due to accounting irregularities, but the rest of the high yield Brazil bank bond sector snapped back. El Salvador 30 year bonds just issued a few days ago that traded as high as $100.85, made their way back to par. Global equities markets were fairly stable today and commodities prices were mixed, so it was a bit unexpected for EM to sell off as it did. Egypt and Lebanon were engulfed in political protests, so after the uprising in Tunisia people were put on alert. Soybean farmers in Argentina took to the Streets in protest and that is country's largest export. US Treasuries sold off at least part of the day and then rallied back slightly after a decent 7 year note auction. After the Federal Reserve communicated yesterday after its 2 day FOMC meeting that it would continue with its quantitative easing measures, people ended up selling Treasuries as they were concerned about inflation creeping up in the US as it has in the UK where quantitative easing measures have also been actively employed. Economic data was a little disappointing, with durable goods and weekly jobless claims missing the mark, but not enough to derail the prevailing sentiment of an economy on the mend. With the economy growing at a measured pace, inflation still at bay, rates locked into a range and people still enamored with the emerging markets, today's sell off is not likely to last long.