Emerging market debt trades flat to lower ahead of Greenspan testimony; Colombia up

By Reshmi Basu

New York, June 8 - Emerging market debt took a moment to pause ahead of Federal Reserve chairman Alan Greenspan's testimony Thursday, as investors are looked for clarity as to the health of the U.S. economy. But Colombia was an exception as the market reacted positively to the announcement of a debt swap.

Wednesday's session saw little action, according to a trader, saying that "nothing major" had occurred during the day.

"Pretty quiet day today [Wednesday]," he replied when asked about market activity.

"Prices were a little lower across the board in all the countries," he remarked.

"Volume was very low," another trader said.

Meanwhile U.S. Treasuries moved slightly higher, helped by a well received auction of $14 billion of new five-year notes.

Nonetheless, the overall tone remained cautious ahead of Greenspan's congressional appearance in front of the Joint Economic Committee.

The yield on the 10-year note stood at 3.94% late Wednesday from 3.97% on Tuesday.

"People are waiting for Greenspan tomorrow [Thursday] to see what he has to say, if he makes any major changes in the Fed statement," added the trader.

During the session, emerging market debt saw light volumes. The JP Morgan EMBI+ Index fell 0.12% while its spread to Treasuries tightened two basis points to 379 basis points.

Brazil's political storm dies down

The impact of the recent political storm in Brazil seems to have died down, the trader remarked. President Luiz Inacio Lula da Silva's government has been accused of bribing lawmakers to win support for government-backed policies in Congress

In his first public appearance since the scandal broke out on Monday, treasurer Delubio Soares said at a news conference Wednesday: "The Workers' Party does not buy votes or support from lawmakers."

"It's kind of settled down for now," the trader said.

"There was some positive news that president Lula was taking control down there."

Brazilian paper inched lower at session's close. The Brazil C bond was down 1/8 of a point to 101 3/8 bid while the bond due 2040 slid 0.05 to 117.15 bid.

"Prices have settled into this area for now until anything major breaks or unless Greenspan does anything major tomorrow [Thursday]," noted the trader.

Paper from Ecuador, Mexico and Russia also nudged down. The Ecuador bond due 2030 dropped a half a point to 80¼ bid. The Mexico bond due 2009 slipped 0.20 to 119.30 bid. The Russia bond due 2030 fell 0.251 to 110.812 bid.

Colombia up on debt swap

Colombian securities were well bid Wednesday in response to the government's announcement that it will swap foreign currency-denominated bonds for domestic bonds. Potential lack of supply helped the country's paper make gains, said another trader.

The Colombia bond due 2012 gained 0.90 to 114.90 bid. The bond due 2008 added 1.10 to 109.35 bid while the bond due 2020 moved up half a point to 128½ bid.

The exchange will target the local market, according to a market source. The swap will include global dollar bonds maturing in 2006 and 2007 and euro-denominated debt maturing in 2005 and 2008.

In exchange, the participants will receive fixed-coupon Colombian peso-denominated bonds (TES) maturing in 2008, 2009, 2010 and 2014 and inflation-linked bonds maturing in 2010 and 2015.

The exchange will be conducted through a Dutch auction on Friday.

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