EMBI Peru Slides Further

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JP Morgan's country risk index (NYSEARCA:EMB), EMBI Peru, declined 0.7% on Wednesday, from 557 to 553 points, local news agency Andina reports. The index, which measures the spread between the average of Peruvian sovereign bonds and U.S. government bonds, serves as an indicator of country risk, since it measures the risk premium on Peru's sovereign debt.

The recent decline puts the average yield on Peru's sovereign debt at 5.53% above U.S. gov't. bonds.

However, the recent improvement on Peruvian bonds is only a small improvement from a dramatic increase in yields since the onset of the financial crisis. In early September the index stood at 180 points, indicating a spread of 1.80% above U.S. government bonds. In June 2007 the index showed a historic low, at only 95 points.

JP Morgan's EMBI (Emerging Markets Bond Index) serves to evaluate the stability and perceived risk in emerging economies. The recent jump in EMBI Peru must however be explained on basis of the historic low yields on U.S. bonds with investors' flight to safety. 13-week U.S. treasuries fell as a rock in late September. For yields to fall any lower, they would have to turn negative:

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