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Even More Reasons to Allocate to EM Debt

26 April 2023

Read Time 2 MIN

Majority of investment Grade EMs and several High Yield EMs have a lower perceived risk of default in 1 year than the U.S.

U.S. Debt Ceiling

There are many good reasons to allocate to EM debt, and now you can find another one right on your Bloomberg screens. The U.S. is a AAA-rated economy (the top sovereign rating bracket), and we are seriously discussing a possibility of default in the next few months (the debt ceiling debacle).

The 1-year credit default swap (CDS) spread for the U.S. is currently wider than 1-year CDS spreads for the majority of lower-rated Investment Grade emerging markets (EMs) – including Uruguay, Peru, Mexico, Chile, Panama, Czech Republic, Kazakhstan, Poland, Qatar, Kuwait, Saudi Arabia, Israel, Bulgaria, Hungary, Romania, Thailand, Philippines, Indonesia, India, China, Malaysia and South Korea (see chart below).

EM Credit Quality

The 1-year CDS spread for the U.S. is also wider than 1-year CDS spreads for the whole bunch of High Yield EMs – including Brazil, Costa Rica, Guatemala, Oman, Morocco, South Africa, Bahrain, Serbia and Vietnam.

Let this sink in. Stay tuned!

Chart at a Glance: Perceived 1-Year Default Risks in U.S. and EMs

Chart at a Glance: Perceived 1-Year Default Risks in U.S. and EMs

Source: Bloomberg LP.


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