Chapters
Market background
Most bond markets posted gains in July, thanks to the rising prospect of interest-rate cuts in the US and Europe.
In the US, weaker economic growth and labour-market data caused yields to fall in the Treasury market. Further impetus came from signs that US inflation is heading in the right direction, with a lower-than-expected month-on-month print for June. At the end of July, the Fed opened the door to a September rate cut. This, coupled with rising tensions in the Middle East, caused a flight to quality by investors, which put further downward pressure on US Treasury yields.
Mirroring the US market, sovereign bond yields fell across Europe. At the start of July, the market was pricing in about 43bps of cuts by the end of this year; by the end of the month, this had increased to 60bps.
Against the backdrop of rallying global bond markets (especially the US), EM fixed income had a strong month. In the local currency space, the JP Morgan GBI-EM returned 2.3%, driven mostly by hedged local bonds (1.5%); EM FX provided the remaining 0.8%. Turning to hard currency markets, the sovereign index (JP Morgan EMBI GD) rose by 1.9%.
Ukraine’s hard-currency debt market was a top performer after the country reached a debt-restructuring deal. Encouraging inflation dynamics boosted South Africa’s local currency debt market. Inflation also continued to trend down in Central and Eastern Europe, allowing several of the region’s central banks to cut rates.
