EM spreads improve with U.S. stocks rally; corporates lag sovereigns; Bahrain in the wings

By Rebecca Melvin

New York, March 26 – Emerging markets spreads improved on Monday, with the Latin America and Africa regions outperforming Europe and Asia, after bearing the brunt of widening in recent market turbulence.

Europe and Asia spreads were likely to catch up overnight as they had not seen the full effect of the rally in U.S. stock indexes, a New York-based emerging markets strategist said.

Despite the rally, the tone of the market remains uncertain given questions around U.S. trade policy, geopolitics, and interest rates, the market strategist said.

Argentina was one of the best performers on Monday, tightening by 8 bps to 319 bps, and Ecuador was also a big mover, the strategist said.

South Africa bond spreads improved on the back of confirmation of its investment-grade rating and change of outlook to stable by Moody’s Investors Service on Friday.

Among corporate credits, which tend to lag the sovereign market because of their typically smaller deal sizes, the improvement was by only about 2 bps on average. But further improvement is anticipated.

Bahrain is expected to price seven-year sukuk and 12- and 30-year conventional bonds this week after investor meetings wrap up, and other new deal activity is anticipated early in the week ahead of the upcoming Easter holiday, market sources said on Monday.

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