CDS: Spread Widening Ahead

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Latin America's sovereign credit default swap (CDS) markets have performed well in recent months in line with a general improvement in risk sentiment. As a benchmark, the price on BMI 's 5-Year LatAm CDS index narrowed from a 2009 high of 1,364 basis points (bps) to a seven-month low of 785bps in early May. Nevertheless, given that global equity markets appear to be taking a breather, and that the region's macro credentials remain in precarious shape, Latin America's CDS spreads look to be trading extremely tight at present, in our view.