Emerging market debt slows down ahead of FOMC minutes

By Reshmi Basu and Paul A. Harris

New York, Aug. 28 - Emerging market debt tracked U.S. equities higher in thin trading ahead of this week's heavy U.S. economic calendar.

Trading volumes trickled to a drip Monday, which is nothing unusual for this time of year as many market participants are out on vacation before the Labor Day holiday in the United States. Monday was a holiday in the United Kingdom.

Additionally, one market source noted that liquidity would dry up even further as investors homed in on this week's releases of economic reports.

Among the deluge of data, Tuesday will see the release of the much-anticipated minutes of the last Federal Open Market Committee meeting while U.S. gross domestic product data is scheduled for Wednesday.

Last week saw the asset class fall prey to profit-taking on the back of softer equities as the U.S. economic story became a hot topic among market participants. Weaker than expected housing data in the United States put the market on edge over fears that U.S. growth may be slower than originally believed.

The emerging market asset class is now in a holding pattern as investors look for more clarity as to the direction of U.S. monetary policy.

"The market is in a wait and see mode," noted a trader.

"We saw the market give up a little after a good run-up. But we won't be tested until next week when people return," he observed.

"Everything is just very quiet."

Brazil up, Ecuador better

Monday saw higher prices on stable performances in core financial markets. U.S. stocks gained on falling oil prices while U.S. Treasuries remained in a comfortable range, according to a market source.

Brazil chalked up gains while Ecuador curbed a three-day losing streak.

The bellwether Brazilian bond due 2040 added 0.20 to 129.50 bid, 129.60 offered.

In prior sessions, Ecuador saw its spreads widen on election uncertainty. The sovereign's paper unraveled on comments by leading presidential candidate former vice-president León Roldós and his opposition to paying down the country's debt during his potential administration. The market was also unnerved by poll results, which showed that leftist Rafael Correa had moved up in popularity.

In trading Monday, the Ecuadorian bond due 2015 moved up 0.25 to 101.75 bid, 102.25 offered while the bond due 2030 also added 0.25 to 99.75 bid, 100.25. However, the bond due 2012 gave up one point to 102 bid, 103 offered.

Furthermore, another trader noted that the upcoming election would result in volatility for the country's bonds, especially as "rhetoric heats up."

Elsewhere, the second trader observed that the Philippines, Russia and Turkey were mostly flat on the day. During the session, the Philippines bond due 2025 was unchanged at 129.12 bid, 129.62 offered. The Russian bond due 2030 was a tad higher by 0.06 to 110.625 bid, 110.938 offered while the Turkish bond due 2030 was unchanged at 147 bid, 147.50 offered.

Meanwhile, the Argentinean discount bond due 2033 gained 0.55 to 96.25 bid, 96.75 offered. And the Venezuelan bond due 2027 was higher by 0.20 to 123.25 bid, 123.50 offered.

However, it is just not the upcoming slew of economic data that is keeping investors at bay.

"The market is really rich," noted the second trader. "[It's] hard to find an entry point."

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