Emerging markets deadly quiet as holiday nears; prices stable; optimism up and Treasuries down

By Christine Van Dusen

Atlanta, Dec. 22 - Emerging markets seemed to stand in a state of suspended animation on Tuesday as investors and issuers focused most on tying up loose ends in preparation for the end of the year, market sources said.

Not even Dubai World's recent difficulty in reaching a standstill agreement to freeze more than $20 billion of its debt seemed to register with investors on Tuesday.

"There's nothing," a London-based trader said, noting that even hours before the European close the markets were behaving as though they'd already shut down. "It's as quiet as it can possibly get."

Liquidity was "really poor," a buy-side source said. "There's not much flow. Everything has kind of switched off heading into year-end."

On the secondary side, the source said: "There's nothing really to point out. Things are a bit off. Levels are a lot wider than normal. But there's nothing really going on there."

Treasury prices dropped and the yield curve reached record levels of steepness on Tuesday, reflecting increased investor optimism about the U.S. economy and a bigger appetite for risk as the New Year approaches.

"Spreads are tighter because Treasuries are weaker in the last two or three sessions," the London trader said. "The pattern is, in a sentence: cash prices are more or less the same."

Russia's 30-year bonds, for example, have been trading "at about 113 for a number of days but it's going to be tighter than last Wednesday and Thursday because Treasuries are weaker," the trader said.

Bond prices have stayed fairly stable overall, he said.

"The benchmarks are almost all the same in cash bonds but the spreads are tighter. It might get weaker or stronger but you won't see any cash movements in bond prices."

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