NEW YORK (Dow Jones)--Emerging-market debt strengthened slightly against Treasurys Wednesday as prices for U.S. government debt dropped after bond purchases by the Federal Reserve.
Trading has been relatively quiet in emerging-market debt in recent days, ahead of the Christmas holiday. On Wednesday, the risk premium, or spread, on the J.P. Morgan Emerging Markets Bond Index Global was nine basis points tighter at 282 basis points over Treasurys. The index was up 0.15%.
The Embig is now up 12% for the year to date. Analysts are still predicting strong growth for emerging markets for the coming year, although inflationary pressures are now more of a concern.
"We expect growth in emerging economies to stay strong in 2011 and, generally speaking, the major challenge facing policymakers will be to ensure that inflation remains contained and that capital inflows do not threaten financial stability," Capital Economics analysts said in a research note.
On Wednesday, Brazil's central bank caught markets somewhat by surprise with an unusually clear commitment to raise interest rates soon, as the outlook for inflation has become "far less favorable" than it had previously thought.
In a stark reversal of tone, the central bank said in its fourth-quarter inflation report that pressures on prices, which had been largely focused on food prices, have spread to broader parts of the economy. Brazil was 10 basis points tighter at 176 basis points over Treasurys. Its index was up 0.29%. Brazil's benchmark bond the Global 2040 was flat to bid 135 7/16.
Argentina was 25 basis points tighter at 498 basis points over Treasurys. Its index was up 1.11%. Argentina's government said Wednesday that it will reopen a debt-exchange offer that closed in June until the end of the year in hopes of enticing more holdout investors to swap their defaulted bonds for new securities.
Mexico was 10 basis points tighter at 163 basis points over Treasurys. Its index was up 0.19%. Mexico ran up a smaller-than-expected trade deficit in November as increased exports of oil and manufactured goods compensated for similarly robust gains in imports.
On Wednesday, investors were faced with some key economic metrics from the U.S. Third-quarter GDP growth was revised higher, but the upward revision was less than economists had expected. Separate data also showed that existing home sales in the U.S. rose less than expected last month.
-By Anjali Cordeiro, Dow Jones Newswires; 212-416-2200; anjali.cordeiro@dowjones.com
--Matt Cowley, Ken Parks and Deborah Lynn Blumberg contributed to this article.
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