Fitch: Close Look at EM Corporate Bond Trading Reveals Liquidity Risks

Investors in dollar-denominated emerging market (EM) corporate bonds face liquidity risks, according to a new Fitch Ratings report.

In the U.S., high-yield EM dollar-denominated corporate bonds trade far less frequently than their U.S. counterparts. Low trading frequency, along with high levels of country and industry concentration among the largest EM bonds, raises the risk of price volatility in periods of market stress.

Lower trading frequency in EM high-yield corporate issues could, over the longer term, make it more difficult for EM issuers with weaker credit profiles to refinance maturities of dollar-denominated debt. Investors may demand larger risk premiums to compensate for reduced liquidity.

Our survey of 100 of the largest EM high-yield corporate bonds includes several multi-billion-dollar issues and high-profile global corporate issuers. Russian and Brazilian issuers together constituted over 60% of the largest bonds in the survey.