LTP Trade Finance Index - March performance update

The LTP Trade Finance IndexÖ - the independent total return index covering the trade finance asset class - performed poorly in March 2002, generating a negative total return of 0.17%. This result was driven by a sharp upward move in US Dollar interest rates, which overwhelmed a slight tightening in trade finance credit margins.

The long anticipated change in the direction of US Dollar interest rates has now begun to manifest itself, with US Dollar LIBOR increasing from 2.43% to 3.00% during the calendar month. In line with our overall market forecasts for 2002 (published at the end of February on www.ltp.com), trade finance margins tightened once again in March, albeit by just 4 basis points to 172. This overall fall was driven by modest tightening in Turkey, Mexico, and Peru, but with (thankfully) a relatively quiet month in terms of credit 'events' there was little substantive change in our key markets.

Looking forward we see scope for near term spread tightening in some of the more important 'high-yield' markets (Russia, Turkey, Indonesia) based on prospects for oil price strength (Russia) and progress on reform and privatisation (Turkey, Indonesia). By contrast we remain more cautious over market mainstays Brazil and South Korea however, given their exposure to oil price rises and the distraction provided by national election campaigns. We continue to believe that credit events will prove crucial to portfolio allocation in all fixed income markets in 2002. Investors will need to keep a close watch on individual country prospects.

The Index returned a 50 basis point capital loss in March, accounted for by the strong increase in US Dollar interest rates (up by 57 basis points). This overwhelmed the modest reduction in the average credit margin. Interest accrual generated 0.33%, such that the portfolio delivered a total negative return of 0.17% for the month.

The following table breaks down performance between capital appreciation and interest accrual - (note that, because of compounding effects, the constituents may not sum to the total).