Bank-Sourced Credit Improvements Mirror Recent Emerging Market Debt And Eurozone Moves

The current U.S. economic stance favours a weaker dollar but rising U.S. interest rates – a policy mix that would typically be bad for Emerging Market debt. But the Financial Times reports that the latest EPFR data ( shows a continued appetite for Emerging market and Peripheral Eurozone debt.  The main focus for inflows is local currency bonds, taking advantage of relatively undervalued exchange rates as well as a recovery from a five-year bear market.  But the budget position for Peripheral Eurozone economies is also improving and the truncated ECB bond-buying program has recently concentrated on Spanish and Italian debt.

Bank-sourced data shows a credit improvement for many of these Sovereigns over the past four months,.  In particular, the average level of Sovereign credit risk in the Eurozone periphery has declined by about 15%, with the core declining 6%.  There is a near-identical improvement for the G7 Sovereigns.  Apart from the G7, the full bank-sourced sample of more than 100 Sovereigns shows credit risk to be unchanged in recent months.  But within that large set there has been a broad-based improvement.  Countries like Brazil, Uruguay, Peru and Colombia; Morocco, Algeria, Tunisia, Egypt, Lebanon and Tunisia; Russia, Ukraine, China, Taiwan, Malaysia and the Philippines have all improved.  Across these countries, credit risk has dropped by an average of 6% in the past 4 months.

Some asset managers are nervous about sheer weight of money as the main driver of Emerging Market performance. But bank-sourced data focuses on fundamentals, including fiscal outlook and the synchronised improvement in global growth prospects. Monthly updates to Sovereign trends are available through CB Connect.

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Credit Benchmark brings together internal credit risk views from over 40 leading global financial institutions. The contributions are anonymized, aggregated, and published in the form of consensus ratings and aggregate analytics to provide an independent, real-world perspective of credit risk. Risk and investment professionals at banks, insurance companies, asset managers and other financial firms use the data for insights into the unrated, monitoring and alerting within their portfolios, benchmarking, assessing and analyzing trends, and fulfilling regulatory requirements and capital.