Emerging debt-Market stumbles again, Brazil drops

Reuters, 06.20.03, 1:50 PM ET

NEW YORK, June 20 (Reuters) - Emerging sovereign debt stumbled for a fourth straight session on Friday as investors' push to lock in profits after a vibrant rally combined with a flimsy U.S. Treasury market to sink prices.

The benchmark J.P. Morgan Emerging Market Bond Index Plus <11EMJ> shed 1.14 percent, piling on to sharp losses from much of the week. Brazil, a heavyweight in the market with a one-fifth share of the index, slid 2.06 percent as the C bond <BRAZILC=RR> veered 1.0 point lower to 88.75.

Emerging debt took a turn into negative territory this week as U.S. Treasury prices, hit by conflicting messages about an expected U.S. Federal Reserve rate cut, ground lower. U.S. government debt is used as the base for gauging the risk premium of emerging bonds.

Investors have also sought to pare down holdings to take advantage of this year's 22 percent surge. Emerging debt has seen billions of dollars in new cash since the turn of the year, thanks to Wall Street's search for yields above the level of the paltry U.S. rates and optimism for Brazil's reform agenda.

"Overall it's been very quiet," said an emerging debt trader. "Generally it seems there's a fair amount of weakness, particularly Brazil."

"I think it's a little bit of the Treasury and some profit-taking," said the trader. "The sticker price on (emerging market) debt has gotten to levels where many of the old salts are absolutely astonished."

In addition, many investors from Brazil, Latin America's largest country, were seen out of their offices on Friday as they extended Thursday's holiday into a long weekend.

Among the day's biggest losers were Ecuador, whose share of the EMBI-Plus careened 3.62 percent lower. Mexico lost a hefty 1.04 percent, Peru slid 1.02 percent and Venezuela shed 2.18 percent.

"It's trading pretty heavy -- there's lots of supply still. It's profit taking more than anything else and no one's buying yet," said another emerging debt trader.

Ecuador's debt has soared 62.5 percent this year, thanks to the flows to emerging markets and optimism for its International Monetary Fund loan deal. Mexico has gained 11.8 percent, Peru is up 16 percent and Venezuela has added 14.9 percent.