South Africa is due ratings reviews this Friday. Chances are that the Standard & Poor’s agency will cut its BBB rating by one, or possibly even two notches. Another agency Fitch has a stable outlook on the rating but could still choose to downgrade the rating rather than the outlook. What will be the damage?
There is undoubtedly a link between ratings and bond prices. So a one-notch ratings downgrade tends to lead to roughly a 20 percent increase in bond yield spreads and credit default swaps (instruments that are used to hedge against default), according to calculations by JPMorgan. But in South Africa the lower credit rating may already be already reflected in asset prices — Panama, Brazil, Colombia, Philippines, Uruguay, Indonesia, and Romania carry lower sovereign credit ratings but boast lower CDS and dollar bond yield premia over Treasuries. Russia and Turkey have lower average ratings than South Africa but their debt and CDS spreads are roughly on the same level.
LONDON, June 10 (Reuters) – The South African rand fell 0.7
percent on Tuesday versus the dollar, lagging emerging peers as
a stubborn economic downturn looks set to deepen while broader
emerging equities extended gains to one-year highs.
Emerging markets worldwide have been buoyed by signs of
economic recovery in China and United States, as well as euro
zone monetary easing, while bond investors are betting that
developing countries especially in eastern Europe would follow
the ECB in cutting interest rates.
LONDON, June 9 (Reuters) – Emerging local currency bond
yields fell to multi-month lows on Monday after the euro zone’s
extraordinary monetary easing pushed cash into high-yield assets
and boosted expectations of rate cuts in the developing world.
Bulls also received impetus from signs of global economic
recovery after robust U.S. jobs data and a pick-up in Chinese
exports. They have, for the time being, shrugged off U.S.
10-year yields at one-month highs above 2.61 percent and are
betting a U.S. rate rise is quite some way off.
LONDON (Reuters) – Emerging market bulls who had reckoned on a boost from euro zone policy easing are instead facing an incipient rise in U.S. bond yields that threatens to wipe out any support from the ECB.
The European Central Bank is expected to drive one of its main interest rates into negative territory and boost liquidity on Thursday as it grapples with the threat of deflation and a stubborn economic funk in the euro zone. If that doesn’t work, it may even pump in billions of euros via bond-buying, an option almost unthinkable a year ago.
LONDON, June 3 (Reuters) – Emerging sovereign dollar bonds
traded at the lowest yield premia to U.S. Treasuries since
February 2013 on Tuesday, while inflation optimism helped India
and Turkey outperform in local currency debt markets.
Most emerging assets were rangebound, however, taking off
the Chinese government’s recent stimulus announcements and
better economic data in stride. Instead, focus was on U.S.
Treasury yields, which rose above 2.5 percent for the first time
in a week.
LONDON, June 2 (Reuters) – Banks fearful of wide-ranging
Iran-style U.S. sanctions in retaliation for Moscow’s actions in
Ukraine are slashing their inventories of Russian assets to the
minimum, effectively freezing up the trade in its bonds.
In the short-term, that is an inconvenience for the funds
that may be seeking to dip back into Russian bonds after a huge
sell-off in March and April. But if the drought persists it
could threaten the ability of Russian borrowers to raise money
by issuing new securities in primary markets.
LONDON, May 29 (Reuters) – Kazakhstan’s Alliance Bank,
majority owned by the country’s sovereign wealth fund, said on
Thursday that talks with creditors had broken down on what would
be its second debt restructuring in four years.
The bank defaulted on debt in the aftermath of the global
financial crisis and restructured debt in 2010 but late last
year said it needed to recapitalise to restore profitability.
LONDON, May 27 (Reuters) – Russian stocks slumped 2 percent
on Tuesday and the rouble fell from four-month highs, leading
broad-based emerging market losses as flaring violence in
eastern Ukraine took the edge off optimism fuelled by smooth
The Ukraine vote yielded a clear win for confectionary
magnate Petro Poroshenko who has promised to seek a meeting with
Putin to establish stability in eastern Ukraine. The smooth
election also averts the immediate threat of fresh Western
sanctions against Russia.
LONDON, May 23 (Reuters) – Emerging equities headed for a
fourth straight week of gains on Friday, supported by optimism
over world growth though fears of election-related unrest in
Ukraine held the market near 6-1/2 month highs.
MSCI’s emerging equity index was flat and is about
10 percent off levels it was at when a May 22 2013 speech by
ex-Federal Reserve boss Ben Bernanke set off a tidal wave of
selling by warning of a reduction in U.S. money-printing.
LONDON, May 19 (Reuters) – Emerging stocks traded just off
recent 6-1/2 month highs on Monday, held back by a 1.4 percent
fall in China but buoyant sentiment lifted most bourses and
currencies to multi-month peaks.
While Indian stocks rose 1 percent they kept off recent
record highs. Russian markets hit levels unseen since March 3,
when parliament approved President Vladimir Putin’s right to
intervene militarily in Ukraine.