Emerging Market Debt Indicator April 2024

Our EM Debt team provides an update across the investment universe and shares the latest outlook and current top-down positioning.

14. Mai 2024

14 minutes

EMD Team

Chapters

01
Market background
02
Top-down views and outlook
03
Africa
04
Asia
05
Latin America
06
Central and Eastern Europe, Middle East and South Africa
07
EM corporate highlights
01

Market background

Close-up of dark green leaves
Sticky inflation, labour-market resilience, and hawkish comments from the US Federal Reserve caused US Treasury yields to rise sharply and the US dollar to strengthen. This made for a challenging month for emerging market sovereign debt.

A combination of sticky inflation, labour-market resilience, and hawkish comments from the US Federal Reserve (Fed) caused a sharp rise in US Treasury yields over April. The US Consumer Price Index (CPI) revealed higher-than-expected inflation (3.5% year on year), while core inflation – which strips out food and energy prices – was higher still at 3.8% over the same period. Responding to this, Fed Chair Jerome Powell was notably more hawkish in his statements. Powell reiterated that recent economic data suggests it is likely to take longer than expected to bring inflation down to target, and that the Fed can keep interest rates at their current elevated levels for longer if needed. This led to a repricing in the US Treasury yield curve and a reset in the market’s expectations of interest rate cuts. In Europe, sovereign bond yields across the continent rose over the month, although not as significantly as in the US. The European bond market sell-off was partly driven by the correlation with the US, but also a result of market participants removing rate cuts from their 2024 expectations.

April was a difficult month for emerging market (EM) sovereign debt, with the broader asset class coming under pressure from the sell-off in sovereign bond yields across developed markets. Starting with local bonds and currencies, the JP Morgan Government Bond Index-Emerging Markets fell by 2.1% over April, with both EMFX (-1.2%) and hedged local bonds (-1.0%) weakening, with the former impacted by the stronger US dollar. In hard currency debt, the sovereign index (JP Morgan EM Bond Index) also fell by 2.1%, with the more interest rate-sensitive investment-grade portion of the index falling by 2.8%, while the high-yield segment fell by 1.4%.

Authored by

EMD Team

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Investment Process
Any description or information regarding investment process is provided for illustrative purposes only, may not be fully indicative of any present or future investments and may be changed at the discretion of the manager without notice. References to specific investments, strategies or investment vehicles are for illustrative purposes only and should not be relied upon as a recommendation to purchase or sell such investments or to engage in any particular Strategy. Portfolio data is expected to change and there is no assurance that the actual portfolio will remain as described herein. There is no assurance that the investments presented will be available in the future at the levels presented, with the same characteristics or be available at all. Past performance is no guarantee of future results and has no bearing upon the ability of Manager to construct the illustrative portfolio and implement its investment strategy or investment objective.