Category Archives:

Emerging markets

EM bonds YTD review and outlook

While emerging market bonds have notably underperformed in the year-to-date period, Fund Manager Claudia Calich believes the longer-term fundamental case for the asset class remains intact. The outlook for broad-based global economic growth is still in place, for example, which should help fiscal improvements and deleveraging in emerging countries. In this Bond Vigilantes video, Claudia also no…

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An update on Argentina

Argentinian assets have been under material pressure in recent days.  I thought it would be useful to write my thoughts on the recent moves and implications for markets going forward.

Over the past two months, the Argentinian peso had become overvalued in real terms following large inflows from foreign investors in 2017. These capital flows caused the nominal exchange rate to depreciate by much…

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The Venezuelan cash crunch: exporting passports as a palliative?

Venezuela’s cash flow crisis has been well covered. The recent default on its sovereign debt and likely default on the debt issued by its state-owned company, Petroleos de Venezuela SA (PDVSA), combined with collapsing imports attest to its ongoing cash crunch and humanitarian crisis. ¹

A change of economic policy however, would alleviate the crisis and improve the patient’s health. This could …

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Emerging markets debt: 2017 post-mortem and 2018 outlook

Emerging markets debt posted strong returns in 2017, driven by the stabilisation of fundamentals, ongoing global and EM economic recovery, a small rebound in commodity prices and a geopolitical environment in which the usual suspects (Trump, North Korea, China) have behaved in a more benign fashion thus far. One had to struggle to find an asset that produced negative returns and the only two th…

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The hunt for emerging market yield is killing covenants

Would you buy a 7-year unsecured bond at 6% yield from a B1/B+ rated Brazilian airline (first time issuer) with well-below-standard credit covenant protection for investors? Many did last week. Few would have a year ago.

This year, many emerging market bond investors have been tempted to lend further down the credit spectrum in search for higher yields. Strong inflows into the asset class combi…

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Typical hurricane paths in the Caribbean

Caribbean bonds: forecasting the weather, tail risks and spreads

First of all, our thoughts are with those impacted by Hurricane Irma and other recent weather-related disasters.

Beyond the human tragedy and economic costs, these are typically low-probability, but potentially high-impact, events that can ultimately impact an issuer’s ability to service its debt obligations. As bond investors, we aim to assess the various risk factors related to the companies …

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Argentina’s century bond: much ado about nothing

Argentina’s recently issued century bond deal was unexpected in terms of timing and maturity. Century bonds in Emerging Markets (EM) are rare (we think the table below is pretty exhaustive) and they grab the headlines, especially when issued by a credit that has defaulted many (many) times, like Argentina.

Are century bonds that much risker?

  1. Duration: As we wrote previously, the duration of …

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State-owned corporate bonds: there is no such thing as an implicit guarantee

A couple of weeks ago, state-owned International Bank of Azerbaijan (IBA) shocked its bondholders by announcing a surprise restructuring. The bank’s capital ratio turned negative at year-end 2016 due to large currency losses as a result of the depreciation of local-currency Manat (AZN). The International Bank of Azerbaijan bonds (IBAZAZ) 5.625% 2019 bonds were trading above par and dropped by 1…

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M&G Panoramic Outlook: Emerging market corporate bonds – falling default rates and high yields. Too good to be true?

There are a lot of misconceptions about defaults in emerging market (EM) debt. Too often, EM corporates are either considered ‘serial defaulters’ compared with their developed market peers, or seen as a single and homogeneous geography. In reality, default rates follow economic cycles, and having a regional, if not country, approach to default risk remains paramount due to different jurisdictio…

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Czech out: Thoughts on the removal of the currency cap

The Czech National Bank (CNB) has removed its cap against the Euro, which I blogged about earlier this year. Though the signs had been pointing to an early removal (headline inflation had been within the target range since October last year and the CNB had hardened its signalling language), the timing of yesterday’s move at the central bank’s extraordinary meeting did come as a surprise. Curren…

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