WEEKAHEAD-Emerging debt investors face test as returns negative

By Daniel Bases

NEW YORK, Feb 10 (Reuters) - Emerging market investors will have their mettle tested in the coming week as they face the prospects of both weak U.S. retail sales adding to recession fears and uncertainty over Venezuelan oil assets.

Overall emerging debt returns fell into negative territory last week, brought lower by weak U.S. equities and building evidence that America's economy is heading for contraction.

The benchmark JP Morgan Emerging Markets Bond Index Plus 11EMJ.JPMEMBIPLUS saw total returns fall 0.52 percent for the year after rising as much as 0.82 percent by mid-January.

"Next week we continue to test lower. I think that there are people out there now who are going to start worrying about actual performance since we've gone into negative territory," said Enrique Alvarez, Latin America strategist at IDEAglobal in New York.

Emerging market sovereign bonds, which are typically referred to as high-yield, high-risk investments, are still outperforming high-yield U.S. corporate bonds, according to Merrill Lynch data. Merrill's index is down 1.84 percent year-to-date MERH0A0.

Alvarez believes the performance of Brazil's prices in the coming week will hold the key to how the overall market performs given its standing as the most liquid market.

Brazil's long-dated bonds due 2034 and 2037, especially, have seen prices grind lower, testing support levels.

"I think it doesn't have anything to do with the fundamentals at this point in time but is related to the technicals of bond performance," he said.