20140701-法国巴黎银行-EM_CDS__Cash_and_local_bond_trading_trends_-_1Q_14_14页_599kb

EM CDS: Cash and Local Bond Trading Trends - 1Q 14

Core Content

The first quarter of 2014 saw significant changes in emerging market (EM) bond trading and credit default swap (CDS) activity. The EMTA volume survey highlighted a notable increase in cash bond trading, with volumes rising by 20.44% q/q to USD1,590bn, averaging USD25bn daily. This growth was driven by a 60% q/q rise in primary issuance and a rebound in market liquidity following a decline in the second half of 2013.

Main Points

• Cash Bond Trading:

  • Volumes increased by 20.44% q/q to USD1,590bn, averaging USD25bn daily.
  • Hard currency (HC) bonds accounted for USD9bn daily, with USD4.6bn for sovereigns and USD3.8bn for corporates.
  • Local currency (LC) bonds saw USD15bn daily in trading.
  • On a year-over-year (y/y) basis, cash bond volumes rose by 13.6%.
  • The annualised EM hard currency bond turnover ratio increased from 0.65x in 2H 13 to 0.86x in 1Q 14, still below the 3-year average of 0.96x.

• CDS Trading:

  • CDS transactions rose by 48% q/q to USD409bn.
  • The relationship between CDS and cash bond trading volumes remained closely interlinked.
  • In the Q3 09 - 4Q 10 period, CDS volumes diverged significantly from cash bond trends.
  • Russia experienced a sharp 214% q/q increase in CDS volumes, likely due to the Russia-Ukraine conflict.
  • Brazil remained the top CDS market, but Russia overtook CDX Index in second place.
  • China saw a significant decline in sovereign CDS activity, with only USD178m in trading volume.

• Regional Trends:

  • Asia recorded the highest q/q growth in corporate bond trading, up 73% to USD109bn.
  • Latin America (Latam) saw 9.5% q/q growth in local trading, driven mainly by Mexico (up 70% q/q to USD226bn).
  • Brazil and Colombia increased their use of CDS over cash bonds.
  • Venezuela, the Philippines, Hungary, and Argentina remained largely cash-driven markets.

• Country-Level Insights:

  • Mexico was the top cash bond market with USD273bn in trades, followed by Brazil at USD148bn.
  • Hong Kong dominated the corporate bond market with a 19.1% market share.
  • Russia led in HC trades with 14.6% market share, while Brazil and Hong Kong accounted for nearly half of all corporate trades in the EM debt market.
  • Sovereign activity increased by 15.58% q/q, but was outpaced by corporate trading, which rose by 32.37% q/q.

• Market Liquidity and Turnover:

  • The EM hard currency bond turnover ratio increased slightly to 0.86x, but remains below the pre-2007 levels.
  • Corporate turnover rose to 0.15x in 1Q 14, while sovereign turnover increased to 0.36x.
  • Brazilian corporates had a 39.44% share in HC trading, but only 17% turnover of their outstanding stock.
  • Russian corporates had a 26% turnover ratio, making them more liquid than Brazilian corporates.

• Key Trends:

  • Hard currency has been regaining market share since 3Q 11, partly due to EM FX depreciation and the 58.4% growth in the HC bond market.
  • The decline in local bond market share has been ongoing since 3Q 11, with HC bonds dominating.
  • Corporate bonds accounted for 70-80% of primary market activity, but sovereign bonds had a higher share in secondary trading.
  • The Middle East & Africa saw a 22% drop in corporate trading, with UAE leading the decline.

Key Figures

• Total EM cash bond trading volume: USD1,590bn (up 20.44% q/q).
• Daily average cash bond trading volume: USD25bn.
• Hard currency bond trading volume: USD9bn daily (up 30% q/q).
• CDS trading volume: USD409bn (up 48% q/q).
• EM hard currency bond turnover ratio: 0.86x (up from 0.65x in 2H 13).
• Corporate bond trading volume: USD109bn (up 73% q/q).
• Mexican local debt volume: USD226bn (up 70% q/q).
• Brazilian local debt volume: USD91bn (down 78bn q/q).
• Russian local debt volume: USD50bn (up 66% q/q).
• Chinese corporate bond volume: USD178m (up 50% y/y).
• Corporate turnover ratio: 0.15x in 1Q 14.
• Sovereign turnover ratio: 0.36x in 1Q 14.
• EMBIG weight for Brazil: 7.96%.
• EMBIG weight for China: 1.2%.

Conclusion

The first quarter of 2014 marked a rebound in EM bond trading activity, with cash and CDS markets showing strong interlinkage. While hard currency bonds regained market share, local currency bonds still accounted for a significant portion of trading. Asia and Latin America were the main drivers of growth, with Mexico and Brazil leading in cash bond trading. Russia emerged as a dominant player in the CDS market, reflecting increased hedging activity due to geopolitical tensions. Despite the overall improvement in trading volumes, market liquidity remains a concern, with turnover ratios still below historical levels.