Economics: A record-breaking EM default wave
The largest EM bond default wave in history has formed.
The hard-currency bonds of 23 governments are now in debt distress or default, a new record high. And contagion is spreading fast. Seven of those countries have seen their spreads rise above 1000 bps since mid-June.
Investors are putting a premium on country risk.
Unlike previous liquidity-driven selloffs, the rise in spreads has only impacted lowerrated countries. That suggests investors are putting a higher premium on country risk. The ASR EM Default Risk Index is designed for this type of environment.
The default wave may crest soon; the crash doesn’t look systemic.
Our index suggests there may not be much room for the contagion to spread further. Default risk is mostly limited to smaller, less well-connected countries, limiting the spillover to the global economy. Turkey is the major exception.