Local currency rates and FX screen very attractive, while hard currency credit is neutral.
Hard currency debt valuations:
Credit Spreads: Neutral
- The current excess spread of 143 bps is in our second quintile of attractiveness
- Historically, an excess spread in this quintile has been associated with a subsequent mean 2‑year annualized credit return of 0.4% (above the risk-free rate)
- This level implies a valuations-based neutral assessment, although it is fairly close to our negative assessment
USD Rates: Neutral
- Our “deviation from fair value” for USD interest rates shows a modest deterioration in the attractiveness of USD duration, with current levels slightly below fair value
Local currency debt valuations:
FX: Very Attractive
- At 2.0%, our expected spot return indicator lands in the most attractive fourth quartile
- Mean subsequent GBI-EMGD weighted spot return has been +8.7% for the fourth quartile and +7.1% for the third quartile
Local Rates: Very Attractive
- EM local rates maintained an attractive valuation gap versus U.S. interest rates
At 0.4%, this is in our most attractive fourth quartile, where the mean subsequent EM/U.S. return differential has been +2.6%