The LTP Trade Finance IndexÖ - the independent total return index covering the trade finance asset class - was dominated by two very clear trends during the early part of 2001. On the one hand, credit spreads widened as the emerging markets struggled to cope with the US-led slowdown. On the other, regular cuts in USD Libor provided some respite, but could not prevent a steady fall in our total return index. This pattern changed temporarily in May as good news from Argentina (the debt swap) and Turkey (the new IMF funding) prompted a fall in average spreads for the first time this year. Unfortunately this recovery was short-lived, as fresh difficulties in both these countries forced the average risk premium on trade finance assets to rise again in June - and again in July.
In fact, July saw a return to the pattern set in early 2001, with a sharp rise in the average credit spread partially offset by a 36 basis point fall in USD Libor. Argentine margins rose sharply as the markets began to speculate openly about possible default, with Brazil following suit as investors reacted to the latter's sharp economic deterioration since March. Net of the Libor 'gain', the average Index credit margin widened from 153 to 164 basis points.
Despite all this, July provided a relatively high total return - 0.71%, amongst the best this year. The question is, for how much longer can technical factors underpin total returns? With US Federal Funds rates at cyclical lows, they are unlikely to have much further to go.
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).
| Capital | Accrual | Total |
January | 0.74 | 0.59 | 1.34 |
February | 0.11 | 0.48 | 0.60 |
March | 0.08 | 0.51 | 0.59 |
April | 0.06 | 0.52 | 0.58 |
May | 0.49 | 0.49 | 0.99 |
June | 0.13 | 0.43 | 0.56 |
July | 0.24 | 0.47 | 0.71 |
With Argentina's problems still unresolved and heavy refinancing commitments amongst many of the other leading emerging markets within a still-slowing global economy, we continue to see risks on the downside.
Further information on the LTP Trade Finance IndexÖ can be obtained by contacting LTPtrade: | ||
Managing Director - Asia | +65 226 1926 | |
| + 65 226 1251 | |
Head of Research, LTP Risk Management | + 44 20 7292 7970 | |
LTP Trade plc is the leading independent provider of services for the global trade finance market.
LTP's services enable more efficient access to the trade finance market for financial institutions and corporations and enhance transparency and liquidity in the market.
LTP delivers:
- Dealing and distribution services
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Further details can be found at www.ltptrade.com.
