Emerging Markets-Debt spreads wider in thin volume

By Manuela Badawy

NEW YORK, Aug 20 (Reuters) - Emerging sovereign debt spreads were slightly wider in thin volume, with higher risk credits such as Argentina and Ecuador moving on dealer speculation.

Overall spreads, the premium that investors demand for holding securities that are riskier than U.S. Treasuries, widened 3 basis points to 305 over Treasuries, according to JP Morgan's Emerging Markets Bond Index Plus (EMBI+)11EMJ.JPMEMBIPLUS.

"There is very light volume. People are away and that makes movements seem sharper," said Paul Biszko, senior sovereign analyst at RBC Capital Markets in Toronto.

High-risk credit such as Argentina widened 7 basis points to 679 on the EMBI+, shedding 0.65 percent on the day.

So far this year investors of Argentina's bonds have lost 19.7 percent of their initial investment, shedding 4.2 percent in August alone.

"There is little appetite on the bid side in Argentine paper at the moment. There is very little reason to buy Argentina at this time," Biszko said.

Last week Standard & Poor's cut its sovereign debt ratings for Argentina one notch to "B", putting it five levels below investment grade, underscoring market concerns about inflation and the financing outlook for Latin America's No. 3 economy.

"While commodity prices were way high everybody was thinking that it didn't really matter what was happening locally, but now commodity prices are taking a hit and Venezuela is looking as a less stable buyer and so people are becoming more concerned," he said.

Commodity prices have dropped dramatically due to slowing demand and investor speculation, with the Reuters-Jeffries CRB .CRB commodity index showing a fall to a 3-month low of 391.33 index points, a loss of around 16 percent since a record high above 473 on July 3.

Investor sentiment however, remained supported, as the few people left in the market continued betting on the asset class.

The Chicago Board Options Exchange Volatility Index .VIX, Wall Street's main barometer of investor fear, fell 4.04 percent. A drop in the so-called VIX index indicates improved investor sentiment.

Morgan Stanley Capital International's emerging markets stock index .MSCIEF rose 2.04 percent, while the MSCI Latin American stock index .MILA00000PUS rose 4.02 percent.

Meanwhile, Ecuador's spreads tightened 13 basis points to 707 over Treasuries, but total returns fell 1.30 percent on the day. Analysts said most of the movement was driven by speculative dealers.

"Ecuador swings day to day. There is a lot of fast money pulling Ecuador and depending on those profit-taking or putting some positions, it will swing those bonds aggressively on a day-by-day basis," Biszko added.