EM Sovereigns: Covid-19 to leave behind a legacy of debt distress
While the past week has seen some recovery across risk assets on the back of global fiscal and monetary policy stimulus, permanent damage remains for several emerging market sovereign debt issuers. The amount of US$-denominated bonds in emerging markets with a yield above 10% has more than doubled from US$90bn in January to US$190bn
Executive summary
The rush out of risk assets into safe havens has seen liquidity drying up rapidly in Emerging Market credit. This has resulted in large price corrections and dislocations across the space.
Our base case is that access to capital markets can be restored for most EMs over the next few months and that the amount of bonds with prohibitive yield levels is going to decline. However, even in that case, some issuers will find it tough to return to primary markets.
Further down the line, the Covid-19 outbreak has the potential to leave a legacy of sovereign debt distress in emerging markets
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