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Emerging markets (EM) debt performed well in the first quarter of 2024, and we anticipate more of the same in the next quarter, thanks to a benign global macro backdrop, solid EM credit fundamentals, improving technical conditions, and still-decent valuations.

We continue to believe that there are attractive opportunities for investors to increase exposure to long-duration securities to lock in attractive real and nominal yields.

Despite strong performance this year, we also see selective value in high-beta, high-yield credit because we believe the global market environment will be conducive to its outperformance.

We also continue see scope for fundamental differentiation and prefer countries with easier access to multilateral and bilateral funding (including frontier and distressed credit).

Meanwhile, the corporate credit space continues to exhibit a combination of differentiated fundamental drivers, favorable supply technical conditions, and attractive relative valuations to select sovereign curves. We are seeking investment opportunities where corporate credit fundamentals and attractive spreads coincide. Short-maturity bonds have outperformed, but opportunities in longer bonds are appearing. We continue to focus on issuers with low refinancing needs, robust balance sheets, and positive credit trajectories.

Below, we break down some of our largest active positions by beta bucket, which is how we allocate our risk budget.

A View of the Potential Opportunities: Overweight/Underweight

High-Beta Bucket

In the high-beta bucket, our largest overweight positions are in Egypt, Ukraine, and Ghana, and our largest underweight positions are in Rwanda, Kenya, and Nigeria.

Egypt (overweight): Significant external financing—which was unlocked through the recently announced International Monetary Fund (IMF) package and foreign direct investment (FDI) deal—is more than adequate to meet Egypt’s needs. The external sector could also prove resilient following the sharp depreciation of the Egyptian pound. We also believe there is room for further spread compression toward peers in the high-beta bucket and curve steepening.

Ukraine’s potential restructuring could be more favorable to eurobond holders than previously anticipated.

Ukraine (overweight): We have increased our overweight based on a potential restructuring that we have interpreted as more favorable for eurobond holders than previously anticipated. Multilateral and bilateral support also remains strong.

Ghana (overweight): We believe the restructuring process is regaining momentum. The prospect of lower core rates and the rally in high-yield names could support recovery values.

Rwanda (underweight): Imbalances in the external sector and unattractive valuations make Rwanda vulnerable.

Kenya (underweight): Spreads have tightened to levels at which we believe there is better value in other high-beta names.

Nigera (underweight): Valuations are tight relative to peers.

Medium-Beta Bucket

In the medium-beta bucket, our largest overweight positions are in Ivory Coast, Guatemala, and Benin, and our largest underweight positions are in Bahrain, Romania, and Dominican Republic.

Ivory Coast (overweight): We believe valuations are favorable relative to peers. The country’s debt is also supported by strong fundamentals and support from development partners, including the IMF. We also believe Senegal’s peaceful post-election political transition will bolster confidence in the Ivory Coast’s political process ahead of its own elections next year.

Benin (overweight): We believe the country’s bonds will continue to be supported by strong fundamental performance and prudent macroeconomic policies. The country will also receive further support from the IMF under the Resilience and Sustainability Facility in late 2024.

Guatemala (overweight): Macroeconomic conditions are strong and valuations are attractive, and although President Bernardo Arévalo will likely face political obstacles, we believe strong leverage ratios and low fiscal deficits will keep Guatemala a strong credit.

Dominican Republic’s valuations are at their tightest levels since 2007.

Bahrain (underweight): Weak fiscal reform efforts, a deterioration in regional geopolitical risks, and tight valuations make us cautious.

Romania (underweight): We are concerned about deteriorating fiscal risks and political noise ahead of this year’s elections. Romania has already been a prolific issuer this year and is running the risk of an abundance of supply.

Dominican Republic (underweight): Although fundamentals continue to be among the strongest in the region, valuations are at their tightest levels since 2007.

Low-Beta Bucket

In the low-beta bucket, our largest overweight positions are in Saudi Arabia, Bermuda, and Paraguay and our largest underweight positions are in Poland, Uruguay, and Indonesia.

Saudi Arabia (overweight): Efforts to diversify the economy away from the energy sector remain largely on track. Oil prices are supportive of the current investment spend, and we see value in Saudi Arabia relative to some of its regional peers.

We believe Paraguay is on an improving fundamental trajectory.

Bermuda (overweight): Bermuda’s bonds have similar valuations to those of Peru and Chile, but we believe the country has a stronger fundamental trajectory with less institutional uncertainty.

Paraguay (overweight): Although Paraguay has lagged year-to-date, we believe the country is on an improving fundamental trajectory and has attractive valuations for the low-beta bucket.

Poland (underweight): Although the medium-term policy framework looks more favorable under the new government, we remain cautious near term due to an increase in political noise following last year’s elections.

Uruguay (underweight): Credit fundamentals in Uruguay remain strong, but bond prices have compressed materially since the COVID-19 pandemic, and we believe this results in limited scope for additional spread tightening.

Indonesia (underweight): Valuations are unappealing. The country’s fundamental outlook became murkier after presidential elections in February, and there is risk of fiscal slippage should the new government increase spending. In addition, a slowdown in the windfall from commodity exports and a persistently strong U.S. dollar could weaken external positions.

Marco Ruijer, CFA, is a portfolio manager on William Blair’s emerging markets debt team.

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The post EM Debt 2024: Solid Beginnings appeared first on William Blair.

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Andrew Haughwout, Donghoon Lee, Daniel Mangrum, Joelle Scally, and Wilbert van der Klaauw 

As the Great Financial Crisis and associated recession were unfolding in 2009, researchers at the New York Fed joined colleagues at the Board of Governors and Philadelphia Fed to create a new kind of data set. Household liabilities, particularly mortgages, had gone from being a quiet little corner of the financial system to the center of the worst financial crisis and sharpest recession in decades. The new data set was designed to provide fresh insights into this part of the economy, especially the behavior of mortgage borrowers. In the fifteen years since that effort came to fruition, the New York Fed Consumer Credit Panel (CCP) has provided many valuable insights into household behavior and its implications for the macro economy and financial stability.

The CCP was one of the first data sets drawn from credit bureau data, one of the earliest features of the Center for Microeconomic Data (CMD), and the primary source material for some of the CMD’s most important contributions to policy and research. Here we review a few of the main household debt themes over the past fifteen years, and how our analyses contributed to their understanding.   

The New York Fed Consumer Credit Panel 

The CCP is drawn from anonymized credit bureau data provided by Equifax and includes quarterly information on the liabilities of a dynamic panel of individuals (5 percent of the population with a credit report—approximately 14.2 million individuals in 2023:Q4) and their household members (an additional 11.5 percent/ 32.9 million individuals) beginning in the first quarter of 1999. The data are unique in many ways, but the dynamic panel structure was among the most important features since, in each quarter, the data provide a representative picture of credit outcomes of the U.S. population.  

The data include all the major forms of household debt: mortgage and home equity lines of credit, credit cards, auto loans, and student loans. For each individual we observe the opening and closing of accounts, balances and credit limits on existing accounts, payment status on all forms of debt, and other features of the credit report, such as the individual’s credit score. In addition, we know the individual’s location (to the census block) and year of birth. More details on the data are available in Lee and van der Klaauw (2010).  

The Great Financial Crisis and Recovery 

The CCP immediately became an invaluable resource in understanding the extreme challenges that American households were facing even as the financial system and the economy began to recover. In one of the first analyses using the data, The Financial Crisis at the Kitchen Table, we documented the enormous run-up and subsequent decline in household debt and payment delinquencies between 2007 and 2009. In addition, we showed in numerous Liberty Street Economics posts that households had gone from borrowing heavily prior to the peak in home prices to defaulting and paying off debt at a rapid pace beginning in 2007.  

The deleveraging process finally concluded in 2013 (see the chart below), but not before millions of households had lost their homes through foreclosure or lost access to credit through bankruptcy. (Stay turned for our forthcoming post on the long-term consequences for those families.) The fact that the CCP presents a comprehensive picture of household balance sheets also enabled us to identify a then little-known dimension of the housing market boom and bust—the behavior of real estate speculators. Perhaps most importantly, the CCP now provides an early warning signal for stresses in the household sector—something that was not available before the GFC. It also reveals the households and neighborhoods where those stresses may occur. 

Total Cash Flow from Household Debt Turned Slightly Positive in 2013

Student Debt 

As the mortgage and housing markets began to return to a more stable footing after 2012, a new issue for household finance began to emerge: student debt. By 2012, student debt was the second largest household liability and the CCP provided insights into the rapid growth and performance of that stock of debt over the subsequent decade. These analyses were especially valuable because of the paucity of other information on student borrowing: While the federal government plays a dominant role in the market, only the CCP provided the kind of information needed to assess the role of student debt on household balance sheets and provided information about how student debt has become an increasingly important determinant of well-being.  

By 2012 Student Debt Became the Second Largest Household Liability behind Mortgage Debt

Over time, the issues that our analyses pointed to became a central point of policy debate, and our work provided valuable evidence on the effects of various proposals.  

Household Debt during the Pandemic and Beyond 

Many of the concerns that had manifested themselves in the first decade of the CCP were very much in the forefront of economic policy discussions as the COVID-19 pandemic hit the U.S. in 2020. Seeking to avoid a wave of defaults and consumer distress, officials provided monetary and fiscal stimulus, placed moratoria on foreclosures, offered forbearance on many mortgages and student loans, and encouraged lenders to work with borrowers on their other obligations. To help provide greater clarity on how the pandemic and these policies were affecting households, we acquired monthly CCP updates that allowed high-frequency analyses, and these proved themselves invaluable in charting the patterns of hardship and the incidence of the policy benefits. In particular, widespread forbearances were unprecedented and the CCP enabled us to follow borrowers whose mortgages and student loan payments were paused.  

As the forbearance programs largely wound down, we were able to take a look back at who benefited and a look ahead at what might come next for these borrowers. In the end, student loan forbearance lasted far longer than that for mortgages, and we were able to document important impacts of this policy. As policy discussion turned to the idea of permanent student loan forgiveness we were able to provide deep insights into who would benefit and how much in general and based on the specifics of the White House plan. We also were able to show that the unique combination of economic outcomes and policy interventions during COVID had a profound impact on household balance sheets and cash flows, including reductions in credit card debt and delinquency rates, that continues to affect the macroeconomy today.  

A Large Impact on Research and a Bright Future 

In addition to these major areas of enduring interest, the CCP has shown its value in many other ways. The current attention to rising credit card and auto loan delinquencies is a contemporary example and there will continue to be many more. In the meantime, CCP data have been used in hundreds of research studies, deepening understanding of how household liabilities affect welfare and the economy. The initial idea of the CCP was to give policymakers insight into household debt developments in order to avoid a repeat of the events of the Great Financial Crisis. But the scope of analysis using CCP data has also begun to extend beyond household debt to study trends, such as migration, small business finance, gentrification, and disaster resilience. We remain committed to using the data to help us understand the underpinnings and disparities in household finances and to allow us to monitor developments on a high-frequency basis. 

Andrew F. Haughwout is the director of Household and Public Policy Research in the Federal Reserve Bank of New York’s Research and Statistics Group. 

Wilbert van der Klaauw is the economic research advisor for Household and Public Policy Research in the Federal Reserve Bank of New York’s Research and Statistics Group.

How to cite this post:
Andrew Haughwout, Donghoon Lee, Daniel Mangrum, Joelle Scally, and Wilbert van der Klaauw , “The New York Fed Consumer Credit Panel: A Foundational CMD Data Set,” Federal Reserve Bank of New York Liberty Street Economics, April 17, 2024, https://libertystreeteconomics.newyorkfed.org/2024/04/the-new-york-fed-consumer-credit-panel-a-foundational-cmd-data-set/.

You may also be interested in:

The Survey of Consumer Expectations: A Look Back at the Past Decade

An Introduction to the New York Fed Consumer Credit Panel 

The Financial Crisis at the Kitchen Table: Trends in Household Debt and Credit 

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