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04 September 2018 by lberuti

It was a mixed session with things moving in different directions. Stocks were heavy throughout without any obvious catalyst, while credit felt quite robust, especially in Europe where peripheral government spreads were led tighter by BTPs on reassuring Italian budget headlines which eventually gave a boost to financials. But generally speaking the activity on single reference entities is subdued ahead of the roll, with the notable exception of emerging market sovereigns. Argentina has been volatile, but since the beginning of the week, Indonesia has been stealing the show. Yesterday, it was the most actively traded of the CDXEM constituents according to ICE Clearing data - which you can monitor at OTC Streaming -, and today’s data, which will be available early in the afternoon tomorrow, will certainly show the same thing. The rupiah has led a drop in Asian currencies, and reached levels not seen since the 1998 financial crisis, even after Bank Indonesia aggressively hiked rates, made direct market interventions and introduced a slew of measures that includes more hedging tools. Concerns over emerging-market contagion and US trade disputes with China and Canada have discouraged risk taking and triggered Indonesian bond FX exposure. Indonesia’s 5-year risk premium has been the clear laggard among Asian sovereigns recently. While CDS referencing Indonesia could not find any taker at 115bps a fortnight ago, they have widened by 28bps to 142bps during the past 5 trading sessions.