Will credit spreads continue to fall in Latin America?

The “stripped spread” over US Treasuries of the JP Morgan EMBI Global Latin America Index fell by 30bp in March, bringing its decline since the start of February to almost a full percentage point. Although the spread remains larger than those for the other emerging market regions (see Chart), we think it is unlikely to fall much further. Most of the drop in the regional spread over the past two months has reflected outsized national declines in Argentina and Venezuela of around 300bp and 250bp, respectively. Admittedly, national spreads remain high in both countries by emerging market standards – at around 8% in Argentina and approaching 12% in Venezuela. But we are not upbeat about the prospects for either country.