Cornering Obama

Emerging market credits rallied on Thursday following the Russian president, Vladimir Putin's unprecedented plea directly to the American public published in the New York Times.

Putin's surprising move, which was interpreted to have cornered Obama in having no choice but to pursue a diplomatic solution to the Syrian crisis, tightened his own nation's spreads by 10.43bps to trade at 168.0bps late in the European session.

Other EM sovereign credits also rallied following this historic event. South Africa 206bps (-12.58bps), Turkey 207.75bps (-9.09bps) and Indonesia 240bps (-15bps) all rallied to offset the widening seen when the Fed hinted that QE tapering may begin sooner rather than later.

The combination of better than expected Chinese export and industrial production figures and Russia's campaign to rule out military action against Syria were enough to make global markets forget Fed's QE tapering saga for a week.

In contrast to emerging markets, European credits have widened slightly following eurostat's announcement that industrial production dropped 1.5% in the euro area in July compared to June.

This was enough to bring an end to the rally European CDS were enjoying following re-established faith in China's growth.

On the corporate CDS front, Verizon Communications successfully sold $49bn worth of bonds to investors yesterday to break a new record. The previous record holder, Apple had sold $17bn worth of debt.

Credit markets priced Verizon at 78bps early in the US session which is 11bps tighter than yesterday's close.

The markets now await Obama's reaction to Putin's surprise move which will ultimately determine spread performance over the course of next week, especially for EM credits.

Akif Ince, Credit Analyst, Markit

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