Emerging Markets-Argentina, Ecuador move in illiquid market
NEW YORK, Aug 26 (Reuters) - Emerging sovereign debt spreads were flat on Tuesday with credits such as Argentina, Ecuador and Russia moving on market volatility and thin trade.
Argentina's spreads, a gauge of investor aversion to risk, narrowed 10 basis points to 675 over comparable U.S. Treasuries according to JP Morgan's Emerging Markets Bond Index Plus (EMBI+) 11EMJ.JPMEMBIPLUS. Total returns rose 0.36 percent on the day ahead of a bond auction this week.
The country will begin to hold auctions this week in connection with the debt buyback program it launched to bolster flagging investor confidence, with plans to continue them through the end of the year.
Argentina started the program two weeks ago to stem falling bond prices after the government sold $1 billion in 2015 bonds to Venezuela in a direct sale, with a yield of 14.8 percent.
Argentina's purchases have raised around $380 million in short-term debt since it announced the plan on Aug. 10.
The government bought back Boden 2012, Boden 2013, Bonar V and Boden 2008 bonds among others.
Argentina's discount bond due in 2033 ARGGLB33=RR fell 1.000 percentage point to bid 73.500 in price, while its Par bond due in 2038 ARGGLB38=RR fell 1.000 to bid 32.000 and to yield 10.659 percent.
Bond spreads of high-risk debtor Ecuador widened 10 basis points to 743 over Treasuries in an illiquid market during the last week of summer. Total returns dropped 3.02 percent.
Ecuador's global bond due in 2012 ECUGLB12=RR rose 0.5 percentage points to bid 99.000/ask 100.250 and to yield 12.395 percent.
"Sometimes the market reflects changes in the spreads when there hasn't been any trade. Ecuador has not been traded, but it has gotten a weaker bid and that is why the spread has widened," said Gianfranco Bertozzi, vice president of emerging markets research at Lehman Brothers in New York.
Ecuador's other two global bonds, one due in 2015 ECUGLB15=RR dropped by 1.00 percentage point to bid 96.00, ask 97.00 and yield 10.159 percent, and the other in 2030 ECUGLB30=RR fell 0.812 to bid 85.688, ask 89.688 in price and to yield 12.076 percent.
Meanwhile, Russia's 5-year credit default swaps weakened on Tuesday after Moscow recognized the breakaway Georgian regions of South Ossetia and Abkhazia as independent states.
Spreads on the CDS, which act as insurance against defaults or credit restructurings, grew more expensive on investor concerns that the geopolitical tensions will spill over into the investment sector.
Russian 5-year CDS traded at a midpoint price of 134 basis points, wider by 9 basis points versus Monday's trade, according to sources in New York. This means that it would cost $134,000 a year for five years to insure $10 million of debt.
Trading activity was very light given the summer holidays. Continued...
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