Emerging market debt trading volume rises 3% in the first quarter, says EMTA

By Reshmi Basu

New York, June 2 - Trading volume in emerging market debt rose 3% to more than $1.045 trillion in the first quarter of 2004 from the previous quarter, according to a survey published by the Emerging Markets Traders Association.

Brazilian instruments, in particular the Brazilian Bradys and eurobonds, grew to 42% of total turnover excluding local market instruments from 38% the previous quarter.

The increase in Brazilian and other non-investment grade countries is reflective of the "the bullish environment that characterized most of the first quarter, which encouraged heavy trading in the riskiest of bonds, " said Arturo Porzecanski, head of emerging markets sovereign research at ABN Amro, in a news release.

For the first time since 2000, trading in Brazilian instruments exceeded volumes of any other instruments. Trading in Brazilian debt stood at $299 billion in the first quarter, a 38% increase from the fourth quarter.

Brazil's share of total debt trading grew to 29%, up 8% from the previous quarter.

Brazilian turnover increased across each asset class. Brazilian sovereign eurobond trading was up 65% to $142 billion. Brazilian Brady volume edged 4% higher to $77 billion. Local instruments rose 57% to $43 billion. And options on Brazilian debt increased 12% to $22 billion from the previous quarter.

Brazil's C bond and the bond due 2040 were the two most traded instruments at $69 billion and $66 billion in volume, respectively.

Trading in investment grade-rated Mexican bonds fell 36% from the previous quarter to $246 billion.

Mexican bonds were the second most traded instruments followed by Russia in third place.

Russian volumes increased to $74 billion from $63 billion in the previous quarter.

Turkish bonds were fourth at $52 billion.

Meanwhile, Argentinean bond trading volume surged 106% to $35 billion from the previous quarter. Argentina moved up five places to number eight in overall trading volume.

Eurobond trading accounted for 47% of total reported volumes, with 38% of turnover taking place in sovereign issues and 8% in corporate debt. Its volume stood at $486 billion, compared to $367 billion in the previous quarter.

Brazilian instruments comprised nearly one-third of all Eurobond activity, followed by Mexican, Russian, Turkish and Argentine issues.

Even as higher U.S. Treasury yields and Federal Reserve interest rate hikes loom ahead, volume levels have not felt the spillover effect.

"Our impression is that turnover levels have held quite well so far in this second quarter, despite the widening of bond spreads and the drop in new issuance activity," Porzecanski said.

"However, there has been a further concentration in the trading of a few instruments involving Brazil."

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