Emerging market debt dips slightly on profit taking; EM trading in tight ranges

By Reshmi Basu and Paul A. Harris

New York, Sept. 27 - Emerging market debt saw thin volumes Tuesday as many investors continue to filter back from last weekend's International Monetary Fund and World Bank meeting.

The trading session was described as dull by market sources. But overall paper traded in tight ranges and remained expensive.

The session lacked any exciting news, observed a trader.

"We just tracked U.S. equities market for the most part," he said.

"Stuff seemed a little heavy at points today [Tuesday], but as [U.S.] Treasuries came back towards at the end of the day, we kind of had a little bit of a pop."

"Pretty much closing unchanged," he remarked, adding that there were no significant movers.

"The Brazil '40s are closing down 10 cents on the day," the trader noted.

U.S. Treasuries erased earlier losses in response to Federal Reserve chief Alan Greenspan's comments to an economists' group in Chicago. The yield on the 10-year note had made a stab at 4.31% on weak data from the Conference Board earlier in the session. The report showed that consumer confidence dove in September, falling to 86.6 from 105.5 in August.

But as Greenspan failed to directly mention the state of the economy, the Treasury market was unable to find an impetus to move in one direction of another. The yield on the 10-year note stood at 4.29% in late trade, unchanged from the day before.

During the session, the Russia bond due 2030 slid 0.13 to 114½ bid. The Venezuela bond due 2029 lost one point to 116 bid.

EM trading in tight ranges

"It was very subdued session with a very tight range," remarked Enrique Alvarez, Latin America debt strategist for IDEAglobal.

"The market is taking a little bit of profits and better accommodating to that 4.31% reading we had a little while ago on the U.S. 10-year note," he added.

Sources commented that the market is tightly range bound.

"I think that it is waiting for some other external influences...to try and push it past these historical barriers where we sort of rub up against and fall off again in the case of Brazil," noted Alvarez.

Or these external drivers may prompt some profit taking, he said.

Furthermore, this week will see a spate of U.S. economic data, which means that investors will evaluate the current level of spreads against higher U.S. interest rates.

"The market for now seems a little top-heavy," observed Alvarez, which is making it increasingly difficult for investors to find value.

Looking ahead, trading will be choppy as the market tracks U.S. equities and U.S Treasuries," noted the trader.

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