Quarterly EM Debt Update | 2Q 2018

Emerging Debt Valuation Update: 2Q18

Executive Summary

This quarter, we introduce an enhanced method for assessing value in the currencies associated with local debt and re-arrange the report to put the current state of valuations at the front and the explanation of methodology at the back.

The punch line: In the second quarter of 2018 the external debt benchmark was down 3.5% and the local debt benchmark was down 10.4%, a sharp reversal from Q1. The sell-off improved valuations in both local and external emerging debt. In the case of external debt, it moved closer to our measure of fair value (from an overvalued position); we have not seen valuations this attractive since early 2016. In the case of local currency debt, EM currencies are now looking attractive against the USD, but are less attractive relative to the EUR after the USD appreciated strongly in the second quarter. Meanwhile, real yield differentials between EM local bonds and developed market bonds widened to above historical norms.

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Disclaimer: The views expressed are the views and understanding of Carl Ross and Victoria Courmes through the period ending July 2018 and are subject to change at any time based on market and other conditions. While all reasonable effort has been taken to insure accuracy, no representation or warranty for accuracy is provided nor should be assumed. This is not an offer or solicitation for the purchase or sale of any security and should not be construed as such. References to specific securities and issuers are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities.
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