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.