LTP Trade Finance IndexÖ - August performance update

The LTP Trade Finance IndexÖ - the independent total return index covering the trade finance asset class - achieved a modest increase in August as both global Trade Finance credit spreads and US$ LIBOR rates tightened. The steady widening of credit spreads during the opening four months of 2001 has given way to a period of broad stability between May and August, reflecting in large part the temporary resolution of economic problems in Argentina and Turkey. The Argentine stand-off dragged on a little longer, but the decision by the IMF to advance yet more cash appears to have hauled the economy back from the brink of default - for now, prompting a sharp reduction in the generic country risk premium demanded by the Trade Finance market.

Another fall in US$ LIBOR - equivalent to 27 basis points - resulted in a total monthly return for the Index of 0.75%, a good performance by 2001 standards. Net of the LIBOR 'gain', the average Index credit margin tightened from 164 to 158 basis points.

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).