At Any Rate EM Fixed Income Focus: Even the uncertainty has uncertainty
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May 30, 2025 The latest discussions dive into the volatility of emerging market fixed income amid shifting U.S. tariff policies. Resilience is highlighted, as bonds defy global challenges, particularly in Mexico, Brazil, and South Africa. Stability in credit spreads is contrasted with issues in countries like Ukraine and Venezuela, while Argentina shows promise with improved fiscal policies. The transition from IBOR to alternative reference rates is explored, underscoring its potential to attract foreign investment and enhance market reliability.
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US Tariffs Drive EM Volatility
- US tariff policies have been the biggest driver for emerging markets this year, keeping markets volatile and uncertain.
- Market reactions to tariff news have lessened, but uncertainty about timing and impact remains high.
EM Local Bonds Defy Global Sell-Off
- EM local bond yields have decreased recently, defying the sell-off seen in US Treasuries and JGBs.
- This resilience is driven by ongoing EM central bank rate cuts and strong EM currency performance.
Fiscal Concerns Are Episodic in EM
- Emerging markets are not free from fiscal concerns; many run large deficits at historically high debt levels.
- Fiscal worries are episodic and usually intensify around crises, elections, or budget events rather than continuously driving markets.