REFILE-GRAPHICS-Emerging market bond insurance costs surge as rout bites

Fri Aug 21, 2015 11:41am EDT
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(Refiles to fix spelling in eighth paragraph)

By Marc Jones

LONDON Aug 21 (Reuters) - The cost of insuring swathes of emerging market countries' government debt against a default were sitting at multi-year highs on Friday, as the global rout in riskier assets continued to gather momentum.

Major worries about China's health, a potential U.S. rate hike and a slump in commodity prices are combining with some difficult individual country politics to create a near perfect storm for emerging market investors.

The pain has been showing in EM stocks which are at four-year lows and via a mass slide of Asian and commodity-linked currencies, but bond markets are starting to show an increasing degree of pressure too.

As this graphic shows Turkey, South Africa and Saudi Arabia's Credit Default Swaps, which bond buyers use to hedge the risk of default, have all hit their highest since 2013 this week.

China's CDS are also just a whisker away from those levels and others have fared even worse.

A major political scandal rocking Malaysia has seen its CDS costs shoot to their highest since 2011 while a similarly toxic story in Brazil have seen default insurance cost sail to their highest since 2009.

This week though it has been Saudi Arabia that has seen the most jarring move. Its CDS have leapt more than 70 percent on worries that the falling oil price will not only whack its economy but also force it to scrap its long-held dollar currency peg.   Continued...