Is there room only for the biggest, most aggressively-marketed funds in crisis-hit Europe?
A raft of Argentine provinces and municipalities suffered credit rating downgrades this week after one of their number, Chaco, in the north of the country, ran out of hard currency on the eve of a bond payment. Instead it paid creditors $260,000 in pesos. Now Chaco wants creditors to swap $30 million in dollar debt for peso bonds because it still cannot get its hands on any hard currency.
Whoosh! The gloomy start to the final quarter seems to have been swept away again by the beginnings of a half decent earnings season stateside – at least against the backdrop of dire expectations – and a steady drip feed of economic data surprises from the United States and elsewhere. Moody’s not downgrading Spain to junk has helped enormously and the betting is now that the latter will now seek and get a precautionary credit line, which would not require any bailout monies up front but still unleash the ECB on its bonds should they ever even need to – and, given Thursday’s successful sale of 4.6 billion euros of 3-, 5- and 10-year Spanish government bonds, they clearly don’t at the moment (almost 90% of Spain’s original 2012 borrowing target has now been raised). What’s more, Greek euro exit forecasts have been put back or reduced meantime by big euro zone debt bears such as Citi and others, again helping ease tensions and defuse perceived near-term euro tail risks. Obama’s bounceback in the presidential polls after the latest debate may be helping too by rolling back speculation that a clean sweep rather than a more likely gridlock was a possible outcome from Nov 6 polls. China Q3 GDP came in as expected with a marginal slowdown to 7.4% and signs of growth troughing — all adding to the picture of relative calm.
The past 24 hours have brought news of more fund launches targeting emerging corporate debt; Barings and HSBC have started a fund each while ING Investment Management said its fund launched late last year had crossed $100 million. We have written about the seemingly insatiable demand for corporate emerging bonds in recent months, with the asset class last month surpassing the $1 trillion mark. Data from Thomson Reuters shows today that a record $263 billion worth of EM corporate debt has already been underwritten this year by banks, more than a fifth higher than was issued in the same 2011 period (see graphic):
The big easing continues. A major surprise today from the Bank of Thailand, which cut interest rates by 25 basis points to 2.75 percent. After repeated indications from Governor Prasarn Trairatvorakul that policy would stay unchanged for now, few had expected the bank to deliver its first rate cut since January. But given the decision was not unanimous, it appears that Prasarn was overruled. As in South Korea last week, the need to boost domestic demand dictated the BoT’s decision. The Thai central bank noted:
JP Morgan has an interesting take on the stupendous recent rally in the credit default swaps (CDS) of countries such as Poland and Hungary which are considered emerging markets, yet are members of the European Union. Analysts at the bank link the moves to the EU’s upcoming ban on “naked” sovereign CDS trades — trade in CDS by investors who don’t have ownership of the underlying government debt. The ban which comes into effect on Nov. 1, was brought in during 2010 after EU politicians alleged that hedge funds short-selling Greek CDS had exacerbated the crisis.
The International Monetary Fund this week painted yet another gloomy picture, cutting its 2012 forecast for Africa along with most other countries around the world. In its latest World Economic Outlook, the IMF shaved its 2012 projections for Africa to 5 percent from 5.4 percent.