At Any Rate EM Fixed Income: Cyclical winds blowing on the eve of Trump 2.0
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Jan 17, 2025 The discussion covers the intriguing shifts in the Emerging Market Fixed Income sector ahead of major political changes. The hosts explore how U.S. rate changes impact EM rates with unexpected muted responses. They detail contrasting monetary policies in emerging markets, spotlighting Indonesia’s cuts and Brazil’s hikes. The volatility in foreign exchange currencies garners attention, emphasizing strategic planning amidst uncertainty. Lastly, the trend of investment outflows from EM funds raises questions amid solid returns and high risk-free rates.
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EM Trading Drivers
- Emerging markets have traded less on Trump policy and more on typical business cycle developments.
- This is due to the lack of clarity on Trump's policies and the impact of US rates and the dollar.
EM Rates Asymmetry
- Despite a US rates rally, EM rates haven't rallied much.
- This asymmetry is due to EM rates outperforming US rates previously.
Monetary Policy Divergence
- Big monetary policy divergence is occurring among central banks.
- Indonesia surprisingly cut rates, while Brazil is expected to hike them, showing dispersion in EM.