Investors have pushed borrowing costs for highly rated emerging market governments and companies relative to developed markets to near their lowest levels since the global financial crisis, as traditional havens such as US Treasuries lose their lustre.
The premium that investors demand to own investment-grade country and company debt over Treasuries has dropped to 1.04 and 1.1 percentage points, respectively. That marks the tightest level for sovereign spreads since 2007, while corporate spreads were also briefly lower than now before Donald Trump’s election as US president last year.
The move highlights how investors have become less worried about the potential fallout for emerging markets from Trumps’ erratic trade war, and are instead focusing on some of these countries’ improving economic health. It also reflects wariness among some investors over US government bonds following the president’s repeated attacks on Federal Reserve chair Jay Powell, and worries about government debt levels.