Egypt Crisis Spurs Jump in Developing Money-Market Rates

Money-market rates in developing nations are increasing at the fastest pace since 2008 as central banks from China to Brazil lift borrowing costs and banks hoard cash on concern unrest in Egypt may destabilize the Middle East.

The yield on JPMorgan Chase & Co.’s ELMI+ Index of short- term debt in emerging markets rose to 2.5 percent on Jan. 28 from a record-low of 1.74 percent on Dec. 31. Overseas borrowing costs also jumped, sending the extra yield on developing-nation dollar bonds over U.S. Treasuries to a four-month high of 2.79 percentage points, according to JPMorgan’s EMBI+ Index.

Inflation is accelerating in seven of the 10 biggest developing nations after surging prices for food, cotton and oil pushed the S&P GSCI Index of commodities toward the highest level since September 2008. Oil advanced 4.3 percent in New York trading on Jan. 28 and added 0.9 percent today as Egyptian protesters clashed with police in the most populous Arab country, calling for an end to President Hosni Mubarak’s 30-year rule. Middle East shares sank yesterday, sending Abu Dhabi’s index to its biggest drop in 14 months.

“The geopolitics is clearly a warning to investors,” said David Cohen, the head of Asian forecasting at Action Economics in Singapore. “Oil prices have spiked higher. That would be one more source of upward pressure on interest rates.”

The last time short-term borrowing costs in developing nations rose this fast was the second half of 2008, when the global financial crisis and record commodity prices pushed the world economy into a recession. The yield on JPMorgan’s ELMI+ Index jumped as high as 21 percent in October 2008, prompting central banks around the world to slash benchmark borrowing costs.