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Are Emerging Markets back?

02 November 2015 by lberuti

Despite all the negative press, sovereign CDS are still a very active compartment of the credit derivatives market. The heat map depicting the magnitude of the move and the amount of trading that takes place is usually largely correlated with the amount of coverage that each country is getting in the press. It is therefore no surprise to see that Turkey, with an average of $623mln traded each day last week, was the most active sovereign CDS. It occupies the biggest square. Following the outcome of the week-end elections that saw Mr Erdogan’s party swept back into office in the second parliamentary vote this year, ending months of political deadlock, it is also no surprise that it has one of the brightest shades of green in the sector. It was one of the strongest moves of the day, and Turkey’s 5 year risk premium tightened by 16bps to 238.5bps. That said, it was almost 30bps tighter at some point during the session, and investors decided to fade the move throughout the day. Like with other Emerging Markets, people are feeling a bit more comfortable, but worries have not completely gone away.