Latin bonds without the Bromo Seltzer

Last February's interest rate hike - the opening shot of the US Federal Reserve Board's sustained assault on real or imagined US inflation - knocked Latin American debt's spread vis-a-vis US Treasuries out to a whopping 5%. Panicky hedge funds and other leveraged investors dumped thei...

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Bibliographic Details
Published in:The Institutional investor (U.S. ed.) 1994-12, Vol.28 (12), p.105
Main Author: Schultz, Janine
Format: Magazinearticle
Language:English
Subjects:
American dollar
Banking
Bond issues
Credit risk
Currency
Derivatives
Emerging markets
Executives
Federal Reserve monetary policy
Government bonds
Income funds
Interest rate swaps
Investment policy
Investments
Investors
Liquidity
Risk management
Structured products
Treasuries
Yield to maturity
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Summary:Last February's interest rate hike - the opening shot of the US Federal Reserve Board's sustained assault on real or imagined US inflation - knocked Latin American debt's spread vis-a-vis US Treasuries out to a whopping 5%. Panicky hedge funds and other leveraged investors dumped their holdings to meet margin calls, and many investors lost a lot. Investors have been venturing back into the market in recent months. However, this time, instead of taking big directional bets, they are turning to derivatives to lay off risk, make shifts in asset allocation, and boost yields. Derivatives dealers such as Merrill Lynch, Bankers Trust Co., and Morgan Stanley & Co. have concocted a host of structured products to accommodate not only the old enthusiasm but also the new wariness of investors in Latin bonds. The dealer-designed structures allow investors to avoid Euroclear's fees and short bonds for a longer time, all in a relatively simple fashion. Despite the hazards, demand for Latin America derivatives continues to grow along with the surging liquidity of the cash markets.
ISSN:0020-3580