Emerging debt risk spreads edged to their tightest levels ever on Friday after a week of good news for high-yield investors which included a possible end to the Federal Reserve's campaign for higher interest rates and some support for Brazil's finance minister.
Yield spreads between emerging sovereign debt and comparable US Treasury notes, a gauge of investors' aversion to risk, narrowed 1 basis point to a record low of 238 points according to J.P. Morgan's Emerging Markets Bond Index Plus (EMBI+).
Bond prices were higher in general with overall returns on the EMBI+ rising 0.22 percent. Trading was subdued though with US bond markets shutting early on Wednesday and Friday, and closed for Thanksgiving on Thursday.
Brazil's Global bond due in 2040, seen as the emerging market benchmark due to its liquidity, was 0.125 point lower in price to bid 123.750 at a yield of 7.5 percent after reaching on Wednesday an all-time high of 123.875.
The market rallied this week after minutes of the latest Fed meeting showed some policymakers concerned about US interest rates rising too far.
The possibility of an end to the Fed's monetary tightening campaign after 12 consecutive hikes encouraged investors to grab riskier assets in emerging markets.
A calmer political situation in Brazil also comforted investors who had been fretting about a possible resignation of the country's Finance minister Antonio Palocci.
Praised by Wall Street for his tough fiscal measures, Palocci is under fire both from the opposition, who accuse him of raising illegal campaign funds before he assumed his current post in 2003, and Brazilian officials who say he is restraining government investment.
Although speculation that he would be ready to step down abated in the previous days, analysts still foresee a tough time for Palocci on Wednesday, when the government is expected to release figures for the country's third-quarter gross domestic product.
Brazil's risk spreads were slightly tighter at 340 points on Friday, back to its narrowest point since October 1997 before the Asia crisis hit markets.
Mexico's spreads widened 2 basis points to 115 points after the country's central bank lowered base interest rates by a quarter point, as expected by economists.