11 May 2018 by lberuti
The last time the credit market really paid attention the sovereigns was a while ago, but this week was all about Emerging Markets and the sovereigns included in the CDXEM. Early on Argentina was under the spotlight after the country had to hike short term interest rates by almost 10 percentage points to stem a currency crisis as the country’s fiscal woes remain unresolved. The government had to bite the bullet and turned to the IMF to demand a $30Bln credit line. The IMF appears to be showing good will to pursue Argentina’s request and that stopped the rot to a certain extent, but investors are waiting for the terms and date of the deal. Argentina’s 5-year risk premium was pushed 72bps wider at 404bps. The Lebanese Republic, Turkey and Egypt all suffered from the renewed tension in the Middle East after America pulled out of the Iran nuclear deal and saw their 5-year risk premia rise 45bps to 570bps, 5bps to 237bps and 10bps to 320bps respectively. Malaysia was also under pressure – its 5-year CDS widened 14bps to 92bps - after the shock defeat in the general election of Prime Minister Najib Razak. It put into question the future of state-owned investment fund 1MDB which has been involved in a money laundering scandal.