Quarterly EM Debt Update | 3Q 2018

Emerging Debt Valuation Update: 3Q18

Executive Summary

The punch line: Due to the 26-bp spread tightening in the third quarter (to 362 bps), USD external debt (EMBIG) valuations deteriorated and remain on the expensive side of historical valuations, as fundamentals didn’t improve in a way that justified such tightening. In contrast, for local currency debt (GBI-EMGD), EM currencies declined 1.2% and the yield remained roughly unchanged (-4 bps to 6.62%). Valuation of EM currencies and rates remained mostly unchanged in the third quarter when compared to the second quarter. Our attractiveness measure for EM currencies remains above the historical average. Moreover, the USD remains in “rich” territory while the EUR moved from “cheap” to “rich” territory during the third quarter. Meanwhile, real yield differentials between EM local bonds and developed market bonds remain wide, 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 September 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.