Fischer comments dent EM credits

Emerging market sovereign credits were haunted once again on Tuesday with growing expectation that the US Fed's QE tapering will happen sooner rather than later.

Dallas Federal Reserve president Richard Fischer commented that data from the private sector "have been on a cumulative basis positive" and the Fed's QE programme "cannot go on forever".

Emerging market sovereigns such as Ukraine 1033bps (+29bps), Indonesia 240bps (+10bps), South Africa 228bps (+7bps) and Brazil 212bps (+7bps) took the biggest hits early in the European trading session.

The Markit iTraxx Europe index widened 2.77bps to close the day at 84.3bps - its largest movement since mid-October. The Markit iTraxx Europe Crossover index also underperformed, widening 7.83bps to trade at 348.83bps.

In fact, the weakness was across the board with all European credit indices ending the day wider.

Among the corporates, Telecom Italia was one of the biggest losers trading at 315bps (+12bps) late in the European session.

There were reports this morning that the Italian market regulator Consob is reviewing the Italian telecom company's asset sales plan and €1.3bn worth of convertible bonds issued last week.

One bright spot was the United Kingdom, where CDS spreads enjoyed a 2bps tightening, following the drop in October inflation to 2.2% compared with 2.7% in September. UK CDS traded at 25bps after inflation hit the lowest level this year, taking us closer to the Bank of England's target inflation of 2%.


Akif Ince, Credit Analyst, Markit

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