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emerging markets

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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Mexico: a primer. Elections, inflation, the Bank of Mexico, NAFTA and gasoline

I’m just back from a fascinating research trip to Mexico City, to meet with policymakers, bankers, politicians, analysts, pension funds and regulators.  Like many emerging market economies, the Mexican economy has suffered over the past couple of years due to lower commodity prices and weak global demand for goods.  Of course, Mexico has had its own unique challenge with Donald Trump’s election…

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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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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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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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Research trip: Mexico & Trump – a key call in emerging markets

President Trump’s anti-Mexico rhetoric has made Mexican assets one of the key calls in emerging market debt. I have just returned from a research trip to Mexico where I met with local economists, analysts, and corporate bond issuers. Below are a number of observations from my time there.

Donald Trump won the election on a fairly protectionist rhetoric – with a special focus on Mexico – and the …

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China Renminbi: the USD $50,000 question

Last week, in line with expectations, China announced the renewal of the $50,000 limit of dollar purchases by individuals. What’s changed however is that the foreign exchange commission (SAFE) has tightened the scrutiny on the foreign exchange purchases. Applicants are now required to detail the purpose behind their transactions in order to ensure that the purchase is for “suitable purposes” (e…

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Emerging market debt: 2016 post-mortem and 2017 outlook

Despite a year of high political turmoil – which of course included the UK EU referendum and the US elections – emerging market assets proved surprisingly resilient to the various global events, even with rising core government yields in the second half of 2016.  Given that starting valuations at the beginning of the year, both with respect to credit spreads as well as currencies, were pricing …

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A whole new ball game. M&G 2017 economic and bond market outlook.

In our latest Panoramic Outlook, Jim Leaviss has a look at the forces that resulted in a tumultuous year for establishment politics, the ECB’s quantitative easing dilemma and the prospects for emerging markets in 2017. For the first time since the financial crisis, it appears that bond yields will come under sustained pressure as central banks gradually remove monetary stimulus. The impacts of …

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It’s Halloween. Here are some scary charts.

The financial world is a scary place. Debt, disinflation and deteriorating growth have plagued investors over the past year, plunging bond yields into negative territory in a number of countries. Perhaps most frighteningly, it is now eight years since the financial crisis and central banks in the developed world continue to employ an ultra-easy monetary policy stance. With government bond marke…

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