The LTP Trade Finance Index - the independent total return index covering the trade finance asset class - was (like all financial indices) dominated in the month of September by the consequences of the US crisis. Renewed fears of global recession prompted two half point cuts in short-term US interest rates, of which 92 basis points were reflected in US$ LIBOR rates during the calendar month. This decisive move in interest rates generated a monthly capital gain of 0.87%, by far the highest recorded in 2001. Indeed, overall credit spreads on trade finance assets hardly moved, with a slight widening in Argentina and Brazil offset by tightening in Russia. The major South American economies (like Turkey) are sensitive to any loss of investor confidence in the global emerging markets, unlike Russia which (ironically) has come to be regarded as a safe haven. Despite all this, the secondary markets for trade-related paper have proved quite resilient throughout the crisis. Trading activity, whilst understandably subdued, has continued, with few sharp price corrections.
The fall in US$ LIBOR resulted in a total monthly return for the Index of 1.23%, the strongest monthly performance since January 2001. Net of the LIBOR "gain", the average Index credit margin widened marginally, from 158 to 159 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).
Further information on the LTP Trade Finance Index"! 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
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