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GRAPHIC-Rising default insurance costs in emerging markets

Source : REUTERS
Last Updated: Thu, Jun 13, 2013 15:10 hrs

LONDON, June 13 (Reuters) - Investors' cost of insuring exposure to emerging markets via credit default swaps has soared by up to a third in the past six weeks in line with deepening stress across the asset class.

Emerging stocks, bonds and currencies are suffering a large exodus of foreign investors, spooked by the possibility of an unwinding of U.S. policy stimulus, and that could put many countries at risk of balance of payments crises.

CDS to insure against default by emerging governments have risen the most, up around 110 basis points since early May to around 337 bps, or the highest since September 2011, an index run by financial information company Markit shows.

That means it costs an average $325,000 a year to insure $10 million of debt over a five-year period, a rise of $110,000 since the beginning of May, the following graphic shows:

The index incorporates 5-year CDS for 14 countries from Latin America, Asia and Eastern Europe as well as South Africa.

In comparison, a CDS index of Western European sovereigns has barely budged in the same period.

The cost of insuring corporate debt exposure in the CDS market has also risen sharply, with Markit's 20-member Latin American corporate CDS index up almost 100 bps since early May.

The index for 25 corporate CDS from Eastern Europe, Middle East and Africa has risen around 70 bps in the same period, according to the following graphics:

The emerging corporate bond market is worth over $1 trillion, as companies have used the easy-money environment of recent years to step up borrowing, but the recent surge in the dollar is raising fears of a rise in defaults




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