October 4, 2018 / 9:44 PM / 2 months ago

EMERGING MARKETS-Surging U.S. bond yields hit Latam currencies, stocks

    By Susan Mathew and Miguel Gutierrez
    Oct 4 (Reuters) - Soaring U.S. Treasury yields sent Latin
American currencies and stocks sliding on Thursday, mirroring
the declines seen across global financial markets, although a
volatile Brazilian real ended the day flat.
    The MSCI Latin American currency index fell
1.5 percent in its steepest plunge in three months as the yield
on the U.S. benchmark 10-year Treasury note was perched at
seven-year highs after robust U.S. economic data.
    The stock index was roughly 2 percent lower
with all of the major regional indexes in the red. 
    The Mexican peso weakened, seeing little impact from
the central bank's widely expected move to keep interest rates
at a 9-1/2-year high of 7.75 percent.
    The Banco de Mexico said it would maintain a "prudent"
policy, flagging an upside risk to inflation and a downside risk
to growth.
    "Banxico left the door open to raise the rate in the short
term as it considers that there are still upside risks for
inflation, given an environment of internal and external
uncertainty," CI Banco said in a research note.
    However, Alfredo Coutiño, director of analysis for Latin
America at Moody's Analytics, warned that the central bank was
taking a gamble by not raising rates now.
    "The central bank is taking an unnecessary risk: the foreign
exchange pressures will worsen in the next few days and affect
the direction of inflation for the rest of the year," he said.
    Argentina's peso snapped a three-day winning streak
to finish lower as the allure of the greenback at an 11-month
high swayed capital away from yet another tranche of debt sale
by the central bank.
    The bank has sold billions of pesos worth of seven-day
notes, called Leliqs, at sky-high interest rates to mop up
excess liquidity and keep investors from buying dollars – a
tactic that analysts said was unsustainable.
    The peso is expected to fall further, a Reuters poll showed,
as skepticism over the government's ability to tame inflation
and plug a budget deficit limit the impact of a deal with the
International Monetary Fund intended to shore up the
recession-riddled country's finances.
    The Brazilian real was little changed in a volatile
session, after the latest poll on the country's presidential
race soured hopes of a victory for the market-preferred
candidate, Jair Bolsonaro, in a second-round runoff.

    The poll, released late on Wednesday, pointed to a slight
second-round edge for leftist candidate Fernando Haddad, while
previous polls had shown Bolsonaro had clawed ahead.
    
    Key Latin American stock indexes and currencies at 2129 GMT:
 Stock indexes                 Latest    Daily pct   YTD pct
                                          change     change
 MSCI Emerging Markets         1,010.38      -2.38     -12.78
                                                    
 MSCI LatAm                    2,637.98      -2.13      -6.72
                                                    
 Brazil Bovespa               82,952.81      -0.38       8.57
 Mexico IPC                   48,683.26      -0.66      -1.36
 Chile IPSA                    5,326.13      -0.31      -0.31
 Argentina MerVal             30,928.83      -3.95       2.87
                                                    
 Colombia IGBC                12,527.43      -0.53      10.17
                                                             
 Currencies                    Latest    Daily pct   YTD pct
                                          change     change
 Brazil real                     3.8735       0.55     -14.46
 Mexico peso                    19.0905       0.03       3.19
 Chile peso                       675.4      -2.16      -8.99
 Colombia peso                 3,032.15       0.03      -1.65
 Peru sol                         3.328      -0.18      -2.73
 Argentina peso (interbank)     38.3000      -1.59     -51.44
                                                    
 Argentina peso (parallel)         37.5       2.67     -48.72
                                                    
    

 (Reporting by Susan Mathew in Bengaluru; Editing by Sandra
Maler)
  
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