Emerging Market Currencies fall after Lehman Brothers Bankruptcy

Emerging-market bonds, stocks and currencies tumbled from Moscow to Mexico City as the bankruptcy of Lehman Brothers Holdings Inc. drove investors to sell all but the safest assets.

The extra yield investors demand to own developing nations' bonds instead of U.S. Treasuries swelled 43 basis points to 3.77 percentage points, the widest spread in more than three years, according to JPMorgan Chase & Co.'s EMBI+ index. The MSCI Emerging Markets Index of stocks dropped 1.9 percent to 855.47, the lowest since November 2006. The index has lost a third of its value this year.

Investors sought the haven of gold and U.S. Treasuries after Lehman, once the fourth-biggest U.S. investment bank, filed the largest bankruptcy in history today, with $613 billion of debt.

``The world looks a little uglier,'' said Michael Atkin, head of sovereign research at Putnam Investments in Boston. ``Risky assets'' are ``much less attractive in this environment. There's more weakness to come in emerging markets.''

The yield on the Russian government's 30-year dollar bonds jumped 26 basis points to 6.24 percent. That's 2 percentage points more than similar-maturity U.S. notes, the widest spread since October 2004. Brazil's 11 percent bond due 2040 fell 2.96 cents on the dollar to 127.60 cents, the lowest in 14 months. The yield to the 2015 call date on the Brazil bond rose to 6.05 percent, according to JPMorgan. Yields on two-year U.S. Treasuries fell below 2 percent for the first time since April.

Brazil's real lost 1.9 percent to 1.8144 per dollar while the Mexican peso slumped 1.4 percent to 10.7406. The Turkish lira dropped 2.1 percent to 1.2645, and India's rupee touched 6.0550 per dollar, the lowest since September 2006.

Trading Economics, Bloomberg
9/15/2008 7:26:51 PM