Emerging market debt quiet ahead of Federal Reserve meeting

By Reshmi Basu and Paul A. Harris

New York, Aug. 7 - Emerging market debt weathered lower U.S stocks and Treasuries Monday, a day before the Federal Open Market Committee takes action.

Monday's session opened with a positive tone and remained firm, said a trader, who added that the already light trading volumes thinned out further as the session played out.

Emerging markets were able to post modestly higher dollar prices, despite falls in U.S. core markets. Stocks slipped as oil prices spiked 3% to $76.98 a barrel. At session's end, the Dow Jones Industrial Average was down 16 points to close at 11,223.40.

U.S. Treasuries saw profit-taking as the yield on the 10-year note widened by two basis points to 4.92% at late afternoon.

While the backdrop was not supportive, most Latin American credits saw a quiet session, noted the trader.

"Everyone is on the sidelines before tomorrow [Tuesday]. It was a very uneventful day," he added.

The firm performance came after Friday's weak non-farm payroll numbers helped emerging market rally on anticipation that the Federal Reserve will halt its current monetary tightening campaign, thus putting an end to 17 consecutive fund rate hikes.

During Monday's session, the Argentinean discount bond due 2033 was higher by 0.70 to 96.30 bid, 96.50 offered. The bellwether Brazilian bond due 2040 was unchanged at 129.05 bid, 129.20 offered. The Venezuelan bond due 2027 slipped 0.05 to 124.30 bid, 124.60 offered.

Elsewhere, the Russian bond due 2030 lost 0.13 to 109.875 bid, 110.125 offered while the Turkish bond due 2030 added 0.25 to 148.125 bid, 148.625 offered.

Partial recount in Mexico

In other news, Mexico saw what was seen as positive news on the political front. The electoral tribunal (TEPJF) voted unanimously on Saturday to proceed with a partial recount of 9% of the total 130,477 ballot boxes, coming in line with market expectations.

Leftist Andres Manuel Lopez Obrador requested a full recount after the July 2 election, in which he lost to conservative Felipe Calderon by a razor-thin margin.

However, there may be some volatility in debt prices, depending on how the partial recount pans out, noted a market source.

If the recount shows vote tampering in favor of Calderon, then protests by Obrador's supporters are bound to become louder.

During the session, Mexican bonds saw a mixed session. The bond due 2026 was up 0.25 to 154.75 bid, 155.75 offered while the bond due 2009 lost 0.05 to 111.20 bid, 111.30 offered.

Elsewhere, Colombia's president Alvaro Uribe was sworn into office for a second term amid heightened security. In general, the country's curve was flat on the day, noted another trader.

In trading, the bond due 2012 was unchanged at 116.25 bid. 116.75 offered while the bond due 2033 was unchanged at 133 bid, 134 offered.

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