Reading the EMTA volume survey

I love getting nerdy with EMTA’s volume surveys, and now they’ve released

the big annual survey for all of 2006. In case the press release has disappeared

behind a firewall again, here’s the gist:

Emerging Markets debt trading reached its highest annual level ever in 2006,

according to a report published today by EMTA, the Emerging Markets debt industry

trade association. Participants in EMTA’s Annual Survey of Emerging

Markets debt trading reported volume of over US$6.5 trillion in 2006, a 19%

increase compared with the US$5.5 trillion reported in 2005. Trading volumes

exceeded the nearly US$6 trillion recorded in 1997, when local markets accounted

for only 26% of overall EM trading activity.

EMTA also released the results of its Fourth Quarter 2006 Survey, which showed

that trading stood at US$1.634 trillion in the final months of last year,

compared with US$1.378 trillion in the fourth quarter of 2005 (a 19% increase)

and US$1.599 trillion in the third quarter of 2006 (a 2% increase).

The FT’s Joanna

Chung gets the big picture:

Eurobond volumes rose by just 1 per cent year-on-year to $2,675bn in 2006

while trading volumes in local instruments jumped 42 per cent to $3,687bn.

In other words, although the headline $6.5 trillion number is impressive, the

old-fashioned asset class of sovereign dollar-denominated bonds is rapidly becoming

a thing of the past – and indeed its heyday was a full decade ago, in


EMTA hasn’t quite caught up to the new realities yet, in that it breaks down

volumes by instrument in the eurobond category, but not in the local-market

category. So Mexico’s MBono 20 might be traded more than many of the top 10

eurobonds, but we just don’t know. (We do know, however, that Bonos in total

traded an eye-popping $589 billion in 2006, so it’s probably a safe assumption

to make.)

Volumes on pretty much every individual eurobond except the Brazilian 2040

are pretty pathetic. And even the Brazil ’40s saw their total volume traded

plunge to $477 billion in 2006 from $576 billion in 2005. After that, the Russia

’30s are in second place on $175 billion, and no other instrument cracks the

$100 billion level. The top-traded Mexican eurobond, the 2017, traded less than

$18 billion in 2006, and indeed all of Mexico’s sovereign eurobonds put together

traded less than $100 billion. Clearly, these things are sitting in buy-and-hold

accounts, rather than being used on a daily basis to express opinions on where

EM debt might be headed.

The Vene ’27s are less popular too: they traded $59 billion in 2006 compared

to $74 billion in 2005.

Meanwhile, local markets, especially Mexican local markets, are going from

strength to strength. Mexico’s numbers almost defy belief: the local markets

in total traded $697 billion in 2005, and $1.25 trillion in 2006. In

other words, Mexican local markets on their own account for almost 20% of all

emerging-market bond trading globally.

The surge in Mexican local-market volumes, combined with the drop-off in the

Brazilian 2040s, meant that Mexico has now overtaken Brazil to be the single

most traded country in EM, with $1.53 trillion in total compared to Brazil’s

$1.42 trillion. In 2005, by contrast, Mexico had just $905 billion in total

volume, compared to Brazil’s $1.55 trillion. Obviously, Brazil has some catching

up to do when it comes to local instruments, which grew to $518 billion in 2006

but which are now less than half the volume seen in Mexico. You’d think that

the high yields in Brazil would attract traders, but the problem is really regulatory.

It’s time that the Brazilian regulators made Brazilian local debt easily tradeable

anywhere in the world.

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