FICC Focus EM Lens: Dusting Off Global Macro Playbook With Citi’s Willer
Aug 15, 2025
Dirk Willer, Managing Director and Global Head of Macroeconomic Research at Citigroup, shares insights on the shifting dynamics in emerging markets. He discusses how improving growth and inflation expectations are influencing local rates, especially in a dovish U.S. Fed environment. The conversation dives into the complexities of the fixed income landscape, the impact of dollar fluctuations on emerging markets, and how AI is shaping new macroeconomic strategies. Willer emphasizes the importance of understanding capital flows and central bank behaviors in today's global economy.
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EM Local Benefits From Fed Easing
- EM local rates tend to outperform when US rates fall and the dollar weakens, producing a high Sharpe ratio for that simple rule.
- Citi is overweight EM local now expecting Fed cuts and dollar weakness into the first cut.
Dollar Drives EM Central Bank Flexibility
- Decoupling from the Fed depends on dollar direction and country specifics, with some central banks more tethered than others.
- A weak dollar allows EM central banks to cut more than the Fed; a strong dollar prevents it.
Tariff Shock Hasn't Fully Hit EMs
- Tariffs and trade fears did not produce the expected broad EM weakness because growth has held up and inflation stayed sticky in many EMs.
- If tariff-related growth weakness shows up later, central banks could cut more aggressively and boost EM local further.
