Risk assets bounced back today as the recent turbulence in emerging markets abated.

Spreads in developed markets spiked upwards last week amid fears that vulnerable sovereigns - such as Argentina - could trigger systemic risk, with potentially global repercussions. The South American country's CDS spreads widened more than 1000bps to 2700bps over the last month after the government relaxed capital controls. This in turn produced contagion that affected countries such as South Africa and Turkey.

However, it should be stressed that emerging markets are not homogeneous and each country has its own specific circumstances. China, for one, has a large shadow banking system that is perceived as unstable. Its fragility was one of the main catalysts behind last week's sell-off. But a deal was reached on Monday to prevent the default of a trust product, and this has helped ease any immediate concerns. China's CDS have tightened 11bps to 92bps today. However, the problems in the shadow banking system haven't gone away, and it is likely that this story will return in some form throughout the year.

An apparent improvement in the political situation in Ukraine also underpinned broader sentiment. Ukraine's embattled President Viktor Yanukovich made a series of concessions to anti-government protestors, and this seemed to lead the sovereign's spreads to rally 61bps to 870bps. But this is still an elevated level, and heightened political risk probably means that Ukraine will continue to trade considerably wider than other Eastern European names.

Overall, it was a positive session for developed markets, with the main indices recovering some of their losses from last week. The Markit iTraxx Europe was 3.5bps tighter at 80.25bps, and only a small minority of credits widened. Banks and car makers were the best performers, the latter sector helped by the calmer situation in China. Strong results from Ford also helped the likes of Daimler (52bps, -6), BMW (51bps, -6) and Volkswagen (53bps, -5) rally.

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