EMERGING MARKETS-Mozambique bond yields at record high, EM stocks slip

By Claire Milhench

LONDON, Oct (Shenzhen: 000069.SZ - news) 26 (Reuters) - The yield on Mozambique's restructured "tuna bond" hit a record high on Wednesday after the government said debt levels were unsustainable, while emerging equities slipped from two-week highs, tracking falls in developed markets.

Mozambique's finance ministry warned creditors the government must renegotiate repayment terms if it is to agree a new aid deal with the IMF by early next year.

The International Monetary Fund suspended assistance to Mozambique in April when evidence of $2 billion in secret loans emerged. Mozambique's metical currency has lost over 60 percent against the dollar so far this year, putting further pressure on finances.

The yield on the 2023 restructured "tuna bond" blew out to a record high of 21 percent according to Thomson Reuters data, up from 15.4 percent on Monday, and the price tumbled to a record low of 63.5 cents in the dollar.

"We turned negative on the bond earlier this month, but this has probably happened more quickly than we expected," said Stuart Culverhouse, chief economist at Exotix.

"Clearly they have a debt and refinancing problem and you could imagine they would be seeking a reasonable haircut bearing in mind that the restructuring in April had no haircut. That will be the risk factor - it will take time and investors may have to share a lot of pain."

The benchmark emerging stocks index fell 0.7 percent as risk appetite cooled, led by losses in Asia of over 1 percent in big index constituents such as South Korea and Hong Kong.

The selling extended into the European session, with most bourses in the red, including South Africa stocks, which fell over 1 percent to one week lows, and Budapest stocks, down 0.6 percent.

The South African rand retreated slightly ahead of Finance Minister Pravin Gordhan's midterm budget presentation later on Wednesday, in which he is expected to reduce government spending and raise taxes.

With Gordhan set to appear in court on Nov. 2 to face fraud charges, investors are worried about anything that might jeopardise South Africa's investment-grade rating.

"As long as there is no obvious fiscal slippage it could be that the market takes it well but there is always a risk of volatility in asset prices in the coming weeks," said Samir Gadio, a strategist at Standard Chartered (HKSE: 2888.HK - news) , adding that currency volatility could affect local bond yields and possibly external debt.

The Hungarian forint fell 0.2 percent against the euro to a four-week low after the central bank surprised on Tuesday by cutting its short-term lending rates and commercial banks' reserve rate. The bank also signalled that it could ease policy further through unconventional means.

Oil producers also came under selling pressure after Brent crude futures dipped back towards $50 a barrel as concerns over the persistent global glut re-emerged.

The Russian rouble slipped 0.2 pct and the Kazakhstan tenge fell 0.4 pct against the dollar. Russian dollar-denominated stocks also fell 0.4 percent.

China's yuan rose, however, after the central bank set its daily guidance rate higher, with the dollar easing 0.2 percent from its recent nine-month high.

Investors were also watching developments in Nigeria where President Muhammadu Buhari has asked parliament to approve $30 billion of foreign borrowing to fund planned infrastructure until 2018.

However, analysts expressed scepticism about the levels and there was little reaction in Nigeria's existing sovereign dollar bonds maturing in 2018, 2021 and 2023 .

"Although these plans sound ambitious on the surface, the recent track record of raising external funding will leave many wondering if they are serious," said Alan Cameron, an economist at Exotix.

"With (Other OTC: WWTH - news) yields at such low levels, however, it would be a good time for Nigeria to step up its commercial external borrowing, which is extremely low anyway."

For GRAPHIC on emerging market FX performance 2016, see http://link.reuters.com/jus35t

For GRAPHIC on MSCI (NYSE: MSCI - news) emerging index performance 2016, see http://link.reuters.com/weh36s

For GRAPHIC on MSCI emerging Europe performance 2016, see http://link.reuters.com/jun28s

For GRAPHIC on MSCI frontier index performance 2016, see http://link.reuters.com/zyh97s

For CENTRAL EUROPE market report, see

For TURKISH market report, see

For RUSSIAN market report, see )

Emerging Markets Prices from Reuters Equities Latest Net Chg % Chg % Chg

on year

Morgan Stanley (Xetra: 885836 - news) Emrg Mkt Indx 912.19 -6.06 -0.66 +14.87

Czech Rep 929.28 -4.77 -0.51 -2.83

Poland 1782.41 -3.18 -0.18 -4.13

Hungary 29583.57 -135.79 -0.46 +23.67

Romania 6792.66 -0.38 -0.01 -3.02

Greece 590.88 +1.93 +0.33 -6.41

Russia 998.74 -3.52 -0.35 +31.93

South Africa 44741.86 -459.74 -1.02 -2.30

Turkey 79299.91 -133.40 -0.17 +10.56

China 3117.65 -14.29 -0.46 -11.91

India 27848.41 -243.01 -0.87 +6.63

Currencies Latest Prev Local Local

close currency currency

% change % change

in 2016

Czech Rep 27.00 27.01 +0.04 -0.01

Poland 4.32 4.31 -0.10 -1.36

Hungary 309.01 308.61 -0.13 +1.82

Romania 4.49 4.49 -0.01 +0.63

Serbia 123.04 123.12 +0.07 -1.28

Russia 62.21 62.08 -0.21 +17.26

Kazakhstan 331.60 330.15 -0.44 +2.68

Ukraine 25.56 25.65 +0.35 -6.29

South Africa 13.76 13.74 -0.10 +12.39

Kenya 101.30 101.30 +0.00 +0.89

Israel 3.84 3.84 +0.14 +1.26

Turkey 3.08 3.07 -0.22 -5.20

China 6.77 6.78 +0.16 -4.07

India 66.80 66.80 -0.01 -0.90

Brazil 3.11 3.11 +0.03 +27.20

Mexico 18.62 18.52 -0.52 -7.77

Debt Index Strip Spd Chg %Rtn Index

Sov'gn Debt EMBIG 354 0 .08 7 68.95 1