At Any Rate EM Fixed Income: Revolving market regimes
Feb 27, 2025
Dive into the intriguing effects of recent U.S. policy changes on emerging market fixed income. Discover how emerging market currencies are holding strong even as U.S. equities dip. The dialogue also addresses the complexities of evolving tariff strategies and their muted market responses. Geopolitical influences, especially from the Russia-Ukraine conflict, reveal a mixed bag for Central Asian markets. Finally, explore how investors are navigating the tension between fundamentals and valuations in countries like Turkey and Venezuela.
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Three Channels of Impact
- The new Trump administration's impact on emerging markets has three channels.
- These are tariffs and trade, geopolitics, and US domestic policy's effects on US rates and the dollar.
Trump Trade and US Yields
- US Treasury yields rose significantly from mid-September to mid-January due to the "Trump trade".
- This involved assumptions of increased deficits and inflation under Trump's policies.
EM Currency Resilience
- Contrary to typical patterns, emerging market currencies have shown resilience despite risk aversion in US equity markets.
- This suggests a potential shift in market dynamics where risk-off in equities doesn't automatically trigger EM currency sell-offs.