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Stony silence in Mexican Brady market

On a late-January afternoon, a group of settlements clerks, Brady bond traders, inter-dealer brokers, and other footsoldiers of the emerging-markets universe straggled into a small conference room on the 28th floor of JP Morgan Chase in Manhattan.

Michael Chamberlin

They were invited there by the Emerging Markets Traders Association (EMTA) to discuss the trading of Mexican Value Recovery Rights (VRRs). What wasn't said, what didn't need to be said, was that nearly everybody in the room expected the Brady market to be hit by utter chaos in a matter of days.

VRRs are warrants embedded in Mexican Brady bonds which pay out once the price of oil reaches a certain level. Mexico's Brady bonds - like all Bradys - are restructured bank loans, which involved commercial banks granting significant debt relief. In return, the banks asked for extra payments should Mexico receive any unexpected windfall from its oil revenues.

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