Morning Commentary: Early EM rally fades; Turkish, Iraqi credit wider ahead of Kurdish vote

By Rebecca Melvin

New York, Sept. 22 – An early rally in emerging markets debt faded on Friday, closing out a week in which EM credit softened.

“There was some hope” for a turnaround in the early going following a week in which investors focused on where the markets are heading from here and future monetary policy, among other things. But the rally dampened by afternoon,” MUFG credit strategist Trieu Pham said.

A number of factors may have played a role in the dampened enthusiasm, including more saber rattling by North Korea, which threatened to detonate a hydrogen bomb over the Pacific Ocean in retaliation for tough words from U.S. president Donald Trump in a speech before the United Nations this week.

But North Korea wasn’t a key driver in emerging market credit moves on Friday, Pham said. “It doesn’t help. But the markets are slowly getting used to it.”

The aggressive rhetoric keeps things from rallying, rather than driving the market lower, he said.

In the past month Pyongyang has launched two missiles over Japan and tested a sixth powerful nuclear device following two successful tests in July.

Other factors at play on Friday were uncertainties tied to a possible Kurdish independence referendum and moves in U.S. Treasuries, which had moved higher on Friday.

The Kurdish independence referendum is slated for Monday, but it could still be postponed. Turkey has threatened to impose sanctions if the vote is held.

Turkish and Iraqi credit widened this past week in the face of a possible vote for separation by the Kurds.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.