Morning Commentary: EM spreads wider as U.S.-North Korea tensions escalate

By Rebecca Melvin

New York, Aug. 9 – Emerging markets saw spreads widen in the early going on Wednesday as U.S. Treasury prices rose amid worries over an escalation of tensions between the United States and North Korea. Market activity was low, however.

Turkey and South Africa were each about 5 basis points wider in cash bonds and credit default swaps, Andrew MacFarlane, a credit strategist for BNP Paribas, told Prospect News, “so it feels like a generally weaker day, but also perhaps some profit-taking. Lack of liquidity is definitely not helping things.”

A second source concurred that negative political headlines was resulting in some profit-taking.

Heated words between the U.S. and North Korea spurred investors’ jitters. In response to U.S. president Donald Trump’s warning that North Korea desist in making threats against the United States or face “fire and fury,” North Korea said late Tuesday that it is considering firing missiles at Guam.

The yield on the 10-year U.S. Treasury note was recently at 2.219%, compared to 2.282% on Wednesday.

South Africa was also giving back gains it notched earlier in the week after president Jacob Zuma survived the National Assembly’s no confidence vote.

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