Stock and currency markets often take their cues from the credit markets, so we find it instructive to keep a close eye on credit spreads and credit default swaps (CDS). Looking at the credit markets in the emerging markets, we think there may be initial signs that the storm that has engulfed emerging market assets may be over.

Let’s start with a review of emerging market CDS. In the next three charts we compare the year-to-date move in EM CDS to EM currencies, EM stocks and EM local currency bonds. After peaking at 193bps on June 19, 2018, EM CDS have backed down about 15bps to 176bps (red line, inverted). CDS successfully tested the highs on June 27 at 192bps. On that day emerging currencies, represented by the J.P. Morgan Emerging Market Currency index (blue line), made their lows also.

On that same day, emerging market stocks made their lows.

And, emerging market local currency bonds, as represented by the VanEck Vectors J.P. Morgan EM Local Currency Bond ETF (EMLC) made their lows as well.