Emerging market debt tacks on another losing session; Ecuador keeps falling

By Reshmi Basu and Paul A. Harris

New York, Aug. 25 - Emerging market debt saw spreads drift wider Friday, as the asset class was uninspired by comments made by Federal Reserve chief Ben Bernanke at an economic forum in Jackson Hole, Wyo.

All week, the market had been bracing for Friday's appearance by Bernanke, as investors hoped he would shed light on the direction of U.S. economic growth. Instead the Fed chief remained silent on future monetary policy or inflation and his remarks were perceived as a market non-event, according to a market source.

In the past few sessions, investors' focus has turned to the growth story on the back of much weaker than expected housing data in the United States, which has put the market on edge over fears that U.S. growth may be slower than originally believed.

Ecuador sees red

The U.S. growth story has created a negative backdrop for emerging market debt. That coupled with troubling news on the local front has resulted in lower prices for such high beta names as Ecuador.

Ecuador closed out the session in the red, continuing to be unnerved by comments made by leading presidential candidate León Roldós regarding debt restructuring and his opposition to paying down the country's debt during his possible administration on Wednesday.

Adding to the country's depressed prices, former-finance minister Rafael Correa, who has close ties with Venezuelan president Hugo Chavez, has moved up in support heading into the October election, according to a poll published on Wednesday.

As of now, Roldos appears to be the only sure bet to secure a place in the run-off, while the hunt for second place is still wide open, noted an analyst. Of those surveyed, 63% are undecided.

Posting a third day of losses on election uncertainty, Ecuador surfaced as one of this week's biggest losers.

During Friday's session, the Ecuadorian bond due 2012 gave up 0.25 to 103 bid, 104 offered while the bond due 2015 plunged 2.25 to 101.50 bid, 102 offered. The bond due 2030 shed one point to 99.50 bid, 100 offered.

Spreads wider in light trading

Meanwhile overall trading volumes remain "very light," according to a trader.

"Spreads were wider by about two to three bps. Bernanke failed to serve as a catalyst," he added.

In trading, the benchmark Brazilian bond due 2040 shed 0.10 to 129.30 bid, 129.40 offered.

Rates unchanged for Turkey, Mexico

In other news, Mexico's central bank remained in line with market expectations, keeping the benchmark interest rate steady at 7%.

On a price basis, another trader said, the country's curve saw little movement, since the market had already priced in the rate decision.

And in the absence of any Bernanke news, there was little upside, he added.

During the session, the Mexico bond due 2026 was unchanged at 158 bid, 159 offered.

And in Turkey, the central bank surprised the market by keeping rates unchanged at 17.5% on Thursday. The market had expected a 25 basis point hike. The bank cited weaker domestic demand, improved inflation expectations and improved global liquidity conditions as reasons behind its decision.

On Thursday, high-yielding Turkey had seen its component of the JP Morgan index kick out by 10 basis points. On Friday, volatility eased.

In trading, the country's bond due 2012 was unchanged at 121 bid, 121.75 offered while the bond due 2030 also unmoved at 147 bid, 147.50 offered.

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