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Emerging Markets-Quite debt trade in illiquid market
NEW YORK, Aug 21 (Reuters) - Emerging sovereign debt spreads tightened slightly on Thursday in thin trading volume while investors stepped aside to watch commodity prices rise more than 3 percent on the day.
Overall spreads, an important gauge of investors' aversion to risk, tightened 3 basis points to 303 over comparable U.S. Treasuries, according to JP Morgan's Emerging Markets Bond Index Plus (EMBI+) 11EMJ.JPMEMBIPLUS.
Emerging market debt trading was extremely quiet as investors enjoyed the last two weeks of summer holidays.
"Part of the problem is that illiquidity in the second half of August is when it is historically the thinnest trading volume for the year," said Siobhan Morden, Latin American sovereign and local market strategist at ABN Amro.
Those investors left in the market stepped aside to see the energy and commodity markets surge as the geopolitical and macroeconomic situation helped the boost.
Crude oil rose close to 5 percent trading above $120 for the first time in 13 days driven by rising tensions between the United States and energy giant Russia.
Russia, the world's second-largest oil exporter, said it would respond with more than just a diplomatic protest to a U.S. deal with Poland to station parts of a U.S. missile defense shield on Polish soil.
Relations between Russia and the West had already been strained by Moscow's military intervention in Georgia, a conflict that has already disrupted the transit of Azeri oil through the region.
The Reuters-Jeffries CRB.CRB commodity index, a benchmark basket of 19 futures, was on track Thursday for its biggest weekly percentage jump in 33 years.
"If anything the commodity-dependent credits should have rallied, such as Venezuela, Ecuador and Argentina, because the sell-off in commodities over the past month has been one of the reasons that Argentina has underperformed," Morden said.
Argentine spreads widened 2 basis points to 679 over Treasuries. Total returns fell 0.72 percent. Ecuador spreads also widened 2 basis points to 727 over Treasuries while Venezuela's narrowed 7 basis points to 655 basis points. Total returns remained steady.
Analysts said that due to the fall in U.S. stocks emerging debt credits did not rally as they should have.
U.S. equities fell on fears of more credit losses on Wall Street while soaring oil prices rekindled concerns about consumer and business spending.
Morgan Stanley Capital International's emerging markets stock index .MSCIEF fell 0.29 percent, while the MSCI Latin American stock index .MILA00000PUS rose 1.46 percent.
Yet investors' appetite for riskier assets were still supportive, with the The Chicago Board Options Exchange Volatility Index .VIX, Wall Street's main barometer of investor fear falling 2.94 percent. A drop in the so-called VIX index indicates improved investor sentiment.
