Emerging market dollar-pay debt spreads tightened this week as risk markets were more stable on the back of better-than-expected economic data and strong corporate earnings announcements in the US. The US dollar-pay JP Morgan EMBI Global index returned 8.83% (year-to-date through July 23rd, 2010).

In South Africa, the Central Bank kept its benchmark interest rate at 6.5%, broadly in line with expectations although some analysts had expected a 50 basis point cut. The statement following the announcement mainly focused on inflationary risks from wage and higher administered process. Local rates were a little higher and the currency stronger following the news.

Following the events over the past weekend when talks between Hungary and the IMF broke down due to differences in measures needed to meet fiscal targets, Hungary assets were weaker this week. News on Friday that S&P had downgraded the country’s outlook from stable to negative, as well as Moody’s putting Hungary on review for a downgrade also added to the negative price action.