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Greece And Other Emerging Markets

Greece continues to hog the headlines but sovereigns in the developing world are seeing plenty of action.

Greece was relegated to "emerging market" status by several index providers last year, and its recent turmoil seems to justify the reclassification. But the ongoing problems in the Hellenic Republic shouldn't overshadow issues in sovereigns more familiar to EM investors.

Brazil saw its CDS spreads widen by more than 20bps to 234bps after the government revealed that its budget deficit was twice as large as consensus forecasts. The shortfall is now the largest since the series began in 2001 (though the sovereign's spreads are nowhere near the 1,200bps levels reached in that year). The government is implementing fiscal reforms in an effort to stave off a downgrade to junk. But the CDS market indicates that it will be difficult to maintain an investment grade rating - Markit's implied rating for Brazil is 'BB'.… Read More …