Global credit markets are in a rare state of upheaval.
Emerging-market sovereign dollar-denominated debt is trading at a wider premium than speculative-grade U.S. companies -- a break from historic norms -- underscoring economic and political stresses around the world, while America Inc. powers ahead.
The asset class typically trades at a lower spread than American high-yield bonds, helped by higher credit ratings on average.
Trade angst, dollar strength and contagion from Turkey have taken the shine off developing-economy assets, including those denominated in dollars. Meanwhile, robust earnings growth and a tax package that encourages deleveraging among indebted firms have combined to bolster American balance sheets.
For example, dollar debt issued by Argentina due 2028 now yields over 2.5 percentage points more than similar-maturity notes sold by junk-rated Sprint Corp., a U.S. telecom company, after trading at a lower level as recently as May.
Another sign of diverging risk appetites: the extreme gap between implied currency volatility in the emerging world and that of the Group of Seven nations, rarely seen over the past 18 years.
There are takeaways in all this for bulls and bears. Either the global rout will hit U.S. assets soon enough, or the notable underpeformance of emerging markets relative to developed counterparts looks poised to end.
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