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