LTP Trade Finance IndexÖ - October performance update

The LTP Trade Finance IndexÖ - the independent total return index covering the trade finance asset class - was little changed in October. In general, secondary market prices for trade-related paper have remained broadly stable since the events of September 11th, despite a rapidly worsening outlook for the global economy. Of course, there have been some exceptions, notably in Argentina where plans for another debt restructuring have left observers scratching their heads as to whether this will constitute default. Argentine credit spreads rose within an uncertain and illiquid market, with an accompanying (but far more muted) increase in Brazilian spreads. Pricing in the other main trade finance markets remained broadly unchanged, although there are renewed prospects for spread tightening in Turkey should Economy Minister Dervis manage to transform US political support into additional IMF financing. Meanwhile, the 'safe havens' of China and Russia remain broadly unaffected by the global downturn, although Russian budget calculations for 2002 are being upset by oil price weakness.

Looking more closely at the October Index performance, another fall short term US interest rates (of which 34 basis points were reflected in USD LIBOR rates during the calendar month) was effectively cancelled out by increased credit spreads in Argentina and Brazil, such that the monthly capital gain was negligible at 0.07%. The average credit margin widened to 186 basis points, but accrual income remains at record lows due to the steady decline in LIBOR. The decision to cut US interest rates by another 50 basis points in early November has already set the tone for Index performance in the current 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).