Emerging market debt a tad softer on profit taking; Peru sells $238 million in local bonds

By Reshmi Basu and Paul A. Harris

New York, Dec. 9 - Emerging market debt closed out the week a tad lower in light trading.

Additionally, the market was softer on U.S. Treasury weakness, but sources stressed that the recent bout of profit taking was the primary culprit behind Friday's softness.

Treasuries erased this week's gains, turning defensive ahead of Tuesday's Federal Open Market Committee meeting. At late session, the yield on the 10-year note shot up to 4.54% from Thursday's close of 4.46%.

The combination of Friday and year-end made for an illiquid market, said market sources.

"Books are closed for the year," said one source, adding that no one was going to add risk this far into December.

Additionally, there were no catalysts to prompt the market to move out of its tight trading ranges, said a trader, who described the session as "very, very quiet."

"I think you are at such levels that profit taking is expected no matter what," remarked Enrique Alvarez, Latin America strategist for think tank IDEAglobal.

On Friday the JP Morgan EMBI+ index was down 0.11%.

During the session, the Brazilian bond due 2040 added 0.10 to 125.35 bid, 125.50 offered.

Elsewhere the new Ecuador bond due 2015 gained 0.85 to 93.75 bid, 94.10 offered. The Ecuador bond due 2012 gained ¼ of a point to 101½ bid, 102½ offered while the bond due 2030 was unchanged at 91½ bid, 92 offered.

The Philippines bond due 2015 was down half a point to 108 3/8 bid, 108 7/8 offered while the bond due 2025 gained 0.19 to 121¾ bid, 122¼ offered. The Russia bond due 2030 lost half a point to 111 3/8 bid, 111½ offered.

Alvarez added that without bullish news, the market would continue to retract.

Meanwhile, dedicated emerging market funds lost $252.6 million for the week ending Dec. 7, which so far has been the worst week in 2005, according to EmergingPortfolio.com Fund Research.

Peru sells $238 in local bonds

In primary news, the Republic of Peru sold $238 million in local-currency denominated bonds to repay debt owed to Japan Peru Oil Co.

The bonds due Aug. 2020 were priced to yield 8.15%.

On Dec. 2, Peru said it would issue $832 million of bonds in local and external markets before the close of the year to repay the debt it owes to the Japanese company.

Peru saw a slight pullback in longer-term issues, observed Alvarez, but there was no correlation between the new issue and its external debt.

"You've seen prices from the belly of the curve to the long end lower by a quarter of a point, but nothing of significance," he added.

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