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EM corporate HY default rates fall below 1% for the first time since 2012

Weekly investor research

01 October 2018

EM corporate high yield (HY) default rates have fallen below 1% for the first time since 2012. Over the last 12 months EM HY corporates have defaulted 2.6 times less than their US cousins. However, EM spreads have widened this year, while spreads have narrowed in the US HY space. This implies that relative value has shifted sharply in favour of EM HY corporate bonds. The falling default rate also shows that there is no widespread credit stress in EM. Argentina announces changes its economic team and a brand new approach to fighting inflation. MSCI announces plans, which, if approved, will take the share of China in the MSCI EM equity index to an eye-watering 40%. In Brazil, Bolsonaro reminds everyone that he is no great fan of democracy. Mexico hires a solid economist as vice-president of the central bank and a Turkish bank passes an important test by rolling a USD 1bn syndicated loan. Meanwhile, outside of EM the Fed no longer thinks the Fed funds rate is ‘accommodative’ and in our view, Italy’s populist budget underscores the general truth that developed economies are the most fiscally irresponsible on the planet.

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