Em Sovereign Credit Monitor

Following the US-Iran deal, EM sovereign credit spreads have reached historical tights, with current valuations screening as expensive. Goldman Sachs remains cautious, adjusting 12-month spread targets to anticipate 20bp of widening.

Key Takeaways

• 1.EM sovereign credit spreads have returned to historical tights, leaving little room for significant further upside after the Iran-US deal.
• 2.Goldman Sachs adjusted its 12-month EM index-level spread target to 260bp, allowing for 20bp of widening from current levels.
• 3.Preferred IG sovereigns include Hungary, Kazakhstan, and Saudi Arabia; HY recommendations focus on Egypt and Nigeria due to high carry.

Table of Contents

• Normalising Tight Spreads
• Valuations and left-tail risks
• Valuations: GS EM Sovereign Credit Model
• Left-Tail Risks: EM Sovereign Default Output, NPV Haircut Model, and External Funding Requirements
• Frontier Currency Valuations
• Technicals: Issuance and Maturities
• Themes: Macro Factors
• Model Coefficients

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