Emerging market debt quiet ahead of Fed meeting; Peru reopens 2025 bonds

By Reshmi Basu and Paul A. Harris

New York, Dec. 12 - Emerging market debt stalled Monday during an illiquid session ahead of Tuesday's Federal Open Market Committee meeting.

In the primary market, the Republic of Peru sold $500 million in a retap of its bonds due 2025 to repay debt owed to Japan Peru Oil Co. The reopening priced at 101.027 to yield 7¼% via Citigroup.

Last Friday, Peru sold $238 million in local-currency denominated bonds to pay off its debt owed to the Japanese company.

In the secondary, Peru saw a pullback. The 2025 bond lost 1.95 to 100.85 bid, 101.05 offered. The Peru bond due 2012 fell a quarter of a point to 116 bid, 117 offered.

Quiet session

Emerging market debt opened the session on a quiet note. Market focus has turned to Tuesday's Federal Reserve meeting. The Fed is expected to raise rates, but consensus is split as to whether the central bank will signal higher rates or a pause in monetary policy in its accompanying statement.

As a result, Treasury yields rose on uncertainty. At late session, the yield on the 10-year note stood at 4.56% up from Friday's 4.52%.

A trader described trading as "slow" and "unremarkable."

Additionally, he said that if there was selling, it was seen at the long end of the curve. But many sovereign bonds remained unchanged for the day on a dollar price basis.

"There wasn't much trading happening," he said. "Everything traded in really tight ranges. Five cents here, 10 cents there."

During the session, the Brazil bond due 2040 lost 0.05 to 125.35 bid, 125.45 offered. The Russia bond due 2030 was unchanged at 111¼ bid, 111½ offered. The Venezuela bond due 2027 lost 0.35 to 115½ bid, 115.90 offered.

"For all practical purposes, the trading year is done," said the trader.

"Everyone closed their books after the recent run-up."

Looking at Chile election

In Chile, investors turned their attention to the country's upcoming run-off presidential election to be held on Jan. 15.

On Sunday, socialist Michelle Bachelet grabbed the lead in first round of elections, with 45.8% of the vote. She will face billionaire Sebastián Pinera, who won 25.4% of the vote.

Chilean bonds were down for the day, But the movement was very small, said a second trader.

Its bond due 2007 lost 0.03 to 101.033 bid, 101.187 offered. The bond due 2009 shed 0.07 to 105.595 bid, 105.912 offered. The bond due 2012 moved down 0.10 to 110.034 bid, 110.417 offered.

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