Profit taking ahead of Greenspan's testimony; Mexico's Telmex reopens bonds

By Reshmi Basu and Paul A. Harris

New York, Feb. 14 - Emerging market debt slid slightly Monday as investors cashed in ahead of Federal Reserve Chairman Alan Greenspan's testimony this Wednesday.

Sovereign paper traded in tight ranges as it also closely tracked the U.S. Treasury market. Treasuries as well as emerging markets are on the defensive as both markets await direction from Greenspan's comments.

At the close of the session, the yield on the 10-year note was quoted at 4.08% from Friday's 4.09%.

Emerging market debt started the week softer as profit taking kicked in, according to a Latin America debt strategist at Refco EM.

"The market had quite a run. I'm not surprised it's taking some time to realize profits and to be a little bit more cautious," he said.

During the session, the Brazil C bond lost 0.126 to 102.687 bid while the bond due 2040 slipped 0.10 to 118.05 bid. The Mexico bond due 2009 fell a quarter of a point to 121 bid. The Venezuela bond due 2027 fell 0.10 to 103.15 bid.

News of strong mutual fund inflows to emerging markets helped drive the market last week, noted the strategist.

"The market was digesting the good news and taking advantage of the higher prices, and taking profits," he added.

Emerging markets enjoyed their strongest week of inflows this year, according to EmergingPortfolio.com Fund Research. EM funds posted net inflows of $368.3 million for the week ending Feb. 9.

Monday's weaker market does not mean that the mood or the direction of the market is changing, the strategist noted.

Much of the mood will hinge on what Greenspan has to say this week. Until then, expect trading in narrow ranges, said a trader.

Investors want to know just how measured U.S. interest rate hikes will be.

"Overall, the market, in the past year, has taken his comments very seriously," said the strategist.

"It's looking to read between the lines.

"His comments will be closely followed, but I don't think they will be a driver at this point," he remarked.

Argentina up on optimism

Paper from Argentina continued to move up. The latest figure showed that 37.3% of creditors have participated in the country's $102 billion debt swap, which ends on Feb. 25.

There is now optimism that the swap will be successful, said a source.

"But the picture can change in a snap. No one knows how the government calculated that number," he said.

In trading, optimism over the swap helped lift the country's paper. The Argentina bond due 2008 added 0.35 to 32¾ bid. Both the bond due 2006 and the bond due 2027 each posted three-quarters of a point gains. The Argentina discount bond was up a quarter of a point to 52 bid.

Telmex reopens bonds

The primary market finally made some noise after spending the second half of last week on hiatus.

Mexico's largest telephone operator reopened its $1.3 billion bonds, which it issued in January.

Telefonos de Mexico SA reopened its dual tranches of 4¾% bonds due 2010 and 5½% bonds due 2015 to add a total of $450 million.

The two tranches were comprised of $300 million bonds due 2010 and $150 million bonds due 2015.

The bonds due 2010 priced at 100.3673 and the bonds due 2015 priced at 100.1851.

A market source said the retap went well.

In the secondary market, the 4¾% bond due 2010 was quoted right around the sale price at 100.356 bid, 100.63 offered while the 5½% bond due 2015 was slightly higher at 100.289 bid, 100.771 offered.

JP Morgan ran the Rule 144A/Regulation S offering.

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