SAO PAULO, Dec 26: Emerging debt risk spreads held at record-tight levels on Tuesday in a subdued market between holidays, with investors unwilling to change positions before the new year.

In Sao Paulo, emerging debt traders left their desks early, saying only few investors were in the market.

“We’re closing early today,” said Leandro Britto, emerging markets desk manager with Arkhe brokerage. “We won’t have much to do until the end of the year. Now it is wait and see how 2007 is going to be,” he added.Yield spreads between emerging markets bonds and US Treasury notes, an important measure of risk aversion, widened 1 basis point to 174 basis points on the benchmark JP Morgan EMBI+ index, still close to an all-time low of 173 points first reached in May.

Bond returns were stable, holding gains of 10.7 per cent in the year to date.

Most analysts expect 2007 to be another positive year for the asset class, although they say gains should not reach double digits any more. A price correction is also expected at some point.

“There is no doubt we are going to have a correction but nobody knows when,” said Britto. “The market is still very positive and it is difficult to break this cycle, but obviously the economic data will guide expectations.” US new home sales data, due on Wednesday, is one of the few economic reports worth noting this week, analysts said.

Investors are closely monitoring the US real estate market to gauge the health of the world's largest economy and the impact of its slowdown in developing nations.—Reuters