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Will The Spark Come From Emerging Markets?

03 November 2017 by lberuti

Investors decided that one day of consolidation is enough. After yesterday’s pause, credit indices were back on the tightening track, even though the move was not very aggressive. The strength of the cash market is still fuelling appetite for risk among investors, but there are some pockets of volatility. Today’s fireworks came from South America . Venezuela’s 1-year probability of default has been estimated higher than 70% by the market for more than a month. So when President Maduro said overnight that his country will seek to restructure its debt, it should not have come as a major surprise to anyone. The announcement is merely acknowledging that the heavy debt load for the oil exporting nation has become unsustainable amid a drop in crude output and prices , as well as financial sanctions imposed by the US. It ends a 20-year anomaly that ranked Venezuela bonds among the most profitable investments. The latter all collapsed as market participants expect the recovery to be in the low twentys – investors could end up getting 20 to 25cts for each $1 worth of bonds they own -, but it had almost no impact on other emerging market assets. Probably because the situation has been known for some time, contagion is not on the agenda… yet