What does a country's risk number mean?
It is the extra interest investors demand to hold that country's dollar bonds instead of US Treasuries. The usual gauge is J.P. Morgan's EMBI spread.
When newspapers in Latin America report that riesgo país rose to 900 points, they are quoting the EMBI spread. EMBI stands for Emerging Markets Bond Index, a family of indices published by J.P. Morgan that tracks government bonds issued in dollars.
The spread is the difference between the yield on those bonds and the yield on comparable US Treasury bonds. It is measured in basis points. One hundred basis points equal one percentage point, so a spread of 900 means investors want nine percentage points more than they would accept from the US government.
The number matters outside the bond market. A company in a high-spread country usually pays more for its own loans, and foreign investors raise the return they expect from a mine or a power plant there. A falling spread makes every project in the country cheaper to finance.
- 100 basis points
- 1 percentage point
- Publisher
- J.P. Morgan, since the early 1990s
Explainers describe how things generally work. They are not advice for a specific project or country. See our editorial policy.