Emerging-Market Debt Trading Sinks 36%, EMTA Says (Update2)

By Lester Pimentel
Feb. 25 (Bloomberg) -- Trading in emerging-market debt plunged 36 percent to a five-year low of $4.2 trillion in 2008 as the global financial crisis prompted investors to shun higher- yielding assets.
Trading dropped from $6.49 trillion in 2007, the Emerging- Markets Traders Association, or EMTA, said in a statement. Developing-nation debt trading in the final three months of 2008 tumbled 40 percent from the year-earlier period, the survey by New York-based EMTA showed.
Investors pulled almost $18 billion from emerging-market bond funds last year as they fled all but the safest investments amid more than $1 trillion of credit losses and writedowns at financial firms worldwide, according to ING Financial Bank NV and Cambridge, Massachusetts-based research company EPFR Global.
“Outflows have resumed from retail investors who have increased allocations into money market funds,” Joyce Chang, global head of emerging-markets research, foreign exchange and commodities at JPMorgan Chase & Co., said in EMTA’s statement. “Since August 2008, retail outflows have been steady.”
The extra yield investors demand to own developing-nation debt instead of U.S. Treasuries has swelled 3.68 percentage points since August to 6.53 percentage points today, according to JPMorgan Chase & Co. The spread surged as high as 8.65 percentage points in October.
Brazilian bonds remained the most-traded emerging-market securities, with $847 billion of the country’s debt changing hands last year, EMTA said. Brazil’s 11 percent bond maturing in 2040 was the most frequently traded.
The yield on Brazil’s 2040 bond was unchanged at 8.76 percent at 7:30 p.m. in New York, according to JPMorgan Chase & Co. The bond’s price rose 0.06 cent on the dollar to 123.91 cents.