Emerging market debt closes in on double-digit returns; firmer market ahead of Fed meeting

By Reshmi Basu and Paul Deckelman

New York, Dec. 11 - Emerging market debt extended gains Monday, as investors pushed for a year-end rally.

The market is poised to close out the year with double-digit returns. Year to date, the asset class has risen 9.70%, according to a source.

On Monday, the market was well-bid a day ahead of Tuesday's Federal Open Market Committee meeting, where the Federal Reserve is expected to keep rates steady at 5¼%.

In the absence of country-specific events, the debt market tracked U.S. stocks higher amid thinning trading volumes. Additionally, emerging markets was supported by a recovery in commodity prices, noted sources.

But the market was unable to keep up with the strength in U.S. Treasuries. At session's close, the JP Morgan EMBI Global index was higher by 0.18% while spreads were wider two basis points to 187 basis points versus Treasuries.

A trader who focuses on Asian names called that market "very quiet and still firm."

He said there was no direct impact on the market from the Philippines' having sold PHP 600 million of new Treasury bonds on the domestic market.

"At the margin, it's helping our market - just the strength of the domestic market is helping the dollars."

Overall, he said, "the market does feel pretty firm, but we're winding down pretty rapidly."

In trading, the Indonesian bond due 2025 added 0.25 to 109.50 bid, 110.25 offered. The Philippine bond due 2025 shed 0.06 to 142.75 bid, 143.313 offered.

Latin America well bid

Turning to Latin America, a trader who focuses on Latin American credits, said that "the market is really well bid, obviously."

He said among the "big movers," Argentina was "up big."

He also added that Venezuela had some big movers, such as its bonds due 2027.

The discount dollar notes were spotted up 2 points, which he described as "a huge move."

Heading toward year-end, he said, "I think people are having trouble staying long. There [have] been some oversize buyers."

Among other "pretty strong moves," he said, Ecuador "bounced." The Andean nation has come under pressure from hard-edged comments made by president elect Rafael Correa regarding debt negotiations, but Monday saw the country post a recovery.

In separate news, the trader said there was absolutely no impact on Chile's bonds from the weekend death of controversial former strongman General Agosto Pinochet at the age of 91.

In trading, high beta credits such as Brazil and Argentina scored solid gains. The Brazilian bellwether bond due 2040 added 0.35 to 133.35 bid, 133.40 offered. The Argentine discount bond due 2033 surged 2.25 to 106.25 bid, 106.50 offered. And the Venezuelan bond due 2027 gained 1.05 to 126.35 bid, 126.65 offered.

Overall the second trader described the session as pretty active.

"There seemed to be good buyers," he commented.

Investors chasing yield

On the primary news front, the trader who focuses on Asian names, noted there are a couple of high yield deals in the works, including China Fisheries' $200 million offering. The price talk on that deal is for a yield in the 9¼% to 9 3/8% area.

"In this environment, pretty much anything with any yield is going well, and I'm sure it will be the same story [with China Fisheries].

"Really the market is slowing down ahead of the Fed tomorrow. The tone is still firm - but there's no trading going on," he added.

Furthermore, he said there were "no major implications" for the Asian market of the announcement of Mirant's deal to sell its Philippine holdings for $3.42 billion.

"At the margins maybe it means some financing comes out of it, but it doesn't mean anything significant."

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