Emerging market dollar-pay spreads widened by nearly 50 basis points to 416 in a volatile week, before recovering to 361 over US Treasuries. This marks a 4 basis point widening from last week. Meanwhile, local yields increased 12 basis points to 6.65%. Emerging market currencies broadly depreciated versus the US dollar, led by the Russian ruble (-9.6%), the Hungarian forint (-3.1%) and the Polish zloty (-2.8%).
In an emergency session, the Central Bank of Russia (CBR) raised rates by 650 basis points to 17.0% to arrest the depreciation of the ruble. The rate hike, plus constructive comments from key officials, appeared to offer the currency a temporary reprieve following weeks of steep declines. Based on the fundamentals of the economy, the CBR estimates that the fair value of the ruble is closer to the 54-56 range.
Fitch Ratings downgraded Venezuela by three notches to CCC. Fitch indicated that the 48% decline in crude prices since June has significantly eroded the sovereign's reserves position. Consequently, a balance of payments crisis looms large in light of reduced external financing capacity and rising macroeconomic vulnerability. Venezuela's dependence on oil is high, accounting for 50% of the government's revenue source.
Elsewhere in Latin America, Colombia released third quarter GDP, which showed the economy grew 4.3% year-over-year (y/y) driven by the construction sector. Manufacturing, meanwhile, contracted on sharply lower oil prices. Going forward, the external sector is expected to remain weak due to the significant deterioration in the terms of trade in the final quarter of 2014.
The Bank of Thailand (BoT) left rates unchanged at 2.0% but the decision was not unanimous, with two members voting in favor of a cut. In the accompanying statement, the BoT struck a dovish tone, noting the scope for easing if fiscal policy disappoints next year.
Emerging market bonds experienced outflows of $1.9 billion, skewed toward hard currency funds.