Emerging market debt tightens amid low liquidity; oil credits rise

By Reshmi Basu and Paul Deckelman

New York, Dec. 20 - Emerging market debt saw a choppy session Wednesday during an illiquid session as many market participants closed up shop for the remainder of the year.

As liquidity dried up, volatility inched higher Wednesday, noted a market source.

Nonetheless, spreads for the asset class touched an all-time low, as sovereign debt was mixed across the board while Treasuries were weak.

The spread for the JP Morgan EMBI Index was spotted at 172 basis points over U.S. Treasuries.

The bellwether Brazilian bond due 2040 gave up 0.05 to 133.10 bid, 133.20 offered.

Oil credits up, Ecuador uneven

In other developments, oil credits jumped as oil prices spiked to a three-month high. During the session, the Venezuelan bond due 2027 gained 0.35 to 128.05 bid, 128.35 offered.

Elsewhere, Ecuador posted an uneven session, following Tuesday's rally on news that the Corporacion Andina de Fomento, an Andean development bank, would lend Quito between $2.5 billion and $3 billion over the next four years.

In trading, the Ecuadorian bond due 2015 gave up 0.50 to 94.50 bid, 95.50 offered while its bond due 2030 gained 0.25 to 94 bid, 95 offered. The country's bond due 2012 was spotted unchanged at 94 bid, 95 offered,

Moving to Thailand, the country was a tad softer in trading, following the government's decision on Tuesday to rescind currency controls on international investors.

One source observed that Asian trading was "extremely quiet" as trading across the region shut down for the year.

During the session, the Thailand bond due 2007 was down 0.02 to 100.584 bid, 100.610 offered while the bond due 2013 shed 0.03 to 106.767 bid, 107.634 offered.

Elsewhere, the Philippines bond due 2025 rose 0.50 to 143.25 bid, 143.50 offered.

Meanwhile another source noted that illiquid names included Peru, Russia, South Africa and Turkey.

Trading volumes are expected to thin out even more over the next two days.

But for the few investors left, there is one critical piece of data left. On Friday, the consumer price inflation report will be released.

One source noted that investors will unlikely take any large positions on that data, given that liquidity is so low.

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