Traders of Third World debt are divided over prospects for lower prices in the aftermath of Brazil's debt conversion auction last week.

Brazil converted $111.8 million of debt for investment anywhere in the country at a discount of 31.5 percent to 32 percent, and $88.2 million at a 10.5 percent discount for investment in the impoverished Northeast.One trader who expects weaker prices noted the overall demand for the paper, especially by companies with Brazilian subsidiaries, caused traders to buy the paper in hopes of making quick deliveries to these investors prior to the auction.

One trader noted that prices for Brazilian paper rose to 54.5 percent of the debt's face value until a few days before the auction, when the opportunity for delivery decreased. Then prices weakened.

The rush to accumulate supplies of the paper has left the feeling on the street that everybody was long, the trader said.

While prices often decline somewhat after an auction, he said, long positions made the technicals of last week's auction slightly different from the previous conversion, leading to a definite weakening in prices.

Another trader disagreed, saying there is enough pent-up demand for Brazilian paper by major multinational banks and industrial companies with subsidiaries in Brazil to keep prices firm. While some traders may have been long, they are historical traders in Brazilian debt who can manage their positions without depressing prices, he said.

Most of the demand for the debt has involved conversion for Brazilian central bank deposits, which are more highly sought than sovereign paper issued through Brazilian commercial banks.

One trader doubting a price decline said the auctions, in which Brazil has converted $386.6 million of its nearly $115 billion in debt, have been too small to greatly influence debt prices for other countries.

A third trader noted that the opportunity for arbitrage transactions in the paper also heightened demand for the paper.