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Emerging market debt trading volumes drop 20 pct in 3rd quarter
12/18/2013 Email this story  |  Printable Version

By Daniel Bases

NEW YORK, Dec 18 (Reuters) - Trading volumes of emerging market debt dropped in the third quarter to $1.266 trillion, a 20 percent decline from the prior quarter as issuers pulled back from selling bonds while uncertainty over U.S. monetary policy increased.

Trading activity, however, declined only 2 percent from the same period in 2012, EMTA, the trade association for the emerging markets debt trading industry, said in a statement on Wednesday.

The quarter-on-quarter decline "coincided with a drop of origination, particularly for corporate bonds, where new issuance fell 30 percent over the same timeframe," said David Spegel, global head of emerging markets strategy at ING Financial Markets.

"As an increasingly high-grade asset class, EM bonds have consequently become more sensitive to the latest vagaries of the Treasury market, and it is clear that Fed timing concerns have taken their toll on volumes," he added.

In late May, Federal Reserve Chairman Ben Bernanke hinted at a slowing of the U.S. central bank's asset purchases, which are designed to hold down long-term interest rates in order to spur economic activity.

A decline in Fed bond purchases, currently at $85 billion a month, is expected to drive up U.S. interest rates, which would lead to higher costs for issuers and borrowers globally at a time when economic growth rates remain uncertain.

Local market debt trading volumes fell 7 percent to $822 billion in the third quarter of this year versus the same period a year ago. Compared with trading in the second quarter, volumes declined by 21 percent in the three months ending in September. This sector represents two-thirds of overall debt trading.

Mexican debt was the most frequently traded at $218 billion, followed by Brazil at $154 billion, India at $88 billion, South Africa at $51 billion and Russia at $48 billion.

Eurobond trading rose 7 percent to $437 billion in the third quarter from a year ago, but fell 20 percent from the second quarter given that much of the debt is issued in U.S. dollars and therefore more sensitive to interest rate increases.

Sovereign debt made up 59 percent, or $256 billion, of the Eurobond market, representing a modest increase from the second quarter.

Corporate Eurobond trading volume of $172 billion made up 39 percent of total trading activity in the sector, down from 41 percent in the second quarter.

Russia's 2030 sovereign bond, at $18 billion in turnover, was the most actively traded Eurobond. Ukraine's 2023 bond had $4 billion in trading as did Brazil's 2023 bond. In third place was Brazil's 2041 bond, with $3 billion in turnover and $3 billion for Venezuela's 2027 bond.

EMTA gets trading volumes for over 90 emerging market countries as reported by 49 leading investment and commercial banks, asset management firms and hedge funds to compile its survey.

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