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Retracing: EM34 Update

12 January 2021 by jbchevrel

CDX EM s34 came wider [+8] on our London close. Some outflows from this index as market participants favoured new issues over it, at these levels of spread. This index has been tight compared to its fair value, over the past couple of weeks, adding to reasons for a retracement wider. Finally, the recent bear steepening on the UST curve and stronger US dollar did not any good to EM. Among the new issues, Colombia sold longest-dated $ bond on record for $1.3 billion of a 40-year bond, as well as $790 million of existing 31s. Colombia offered to buy back up to $7.5 billion in outstanding bonds due in 2020s. Adding to the widening rationale is that the tight constituents of CDX EM are close to record tights and don’t look to have much downside, in spread terms. This is especially the in Asia [China Malay Phil around 30 40 40 basis points, respectively]. China’s growth story [and the commodities rebound it largely induced] is the main driver for such tight spreads, although the recent news flow in terms of i] tensions with the US ii] COVID has been worrying. Today, Malaysia imposed emergency state. That measure suspended their parliament for the first time since the 1969 riots between Chinese and Malays.