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Mexico and Russia oil the Embi wheels

Bond performance

December's annual meeting of EMTA was not quite as depressing as many might have expected, especially given that it was held in the middle of a New York snowstorm.

Since the previous meeting of the group, formerly known as the Emerging Markets Traders Association, Argentina had defaulted and Brazil had traded to distressed levels. A couple of years ago, these two countries alone accounted for 48% of JPMorgan's benchmark Embi index; now, they are trading at 6,200 basis points and 1,600bp over US treasuries respectively.

Even so, the Embi managed to round out 2002 with a positive total return: it ended the year up 11% or so, thanks to fudging and luck. The fudging came with the 2001 megaswap of Argentine debt, lead managed by JPMorgan, which reduced Argentina's bonds to 3% of the total index. The luck came with the downward grind in US treasury yields, giving significant price gains on bonds trading at unchanging spreads.

So though Latin America has historically comprised the vast majority of emerging market sovereign debt, the past year has seen a large reweighting.

For one thing, it's much oilier. Mexico and Russia - major oil exporters - now account for 43% of the Embi.

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