June proved to be another challenging month for fixed income markets, as the combination of higher US interest rates, persistent inflation and risk-off sentiment all took their toll. In the US, the Federal Reserve hiked rates by 75bps, while inflation data showed that consumer prices rose further in May. As a result, the yield on the 10-year Treasury rose, peaking at 3.4%, but it fell back sharply into month end to around 3.0%, as fears of a global recession became forefront of investors’ minds.
Inflationary pressures eased in both Angola and Egypt, thanks to lower food prices, while in Kenya, the central bank hiked rates by 50bps for the first time since 2015, as inflation breached the upper part of the target band. Weaker copper prices weighed on Zambia’s trade balance but it still has a healthy surplus.
Inflation is still surprising to the upside, and momentum has been picking up. China continued to gradually reopen from COVID lockdowns, helping growth to improve, but the country’s ‘zero COVID’ policy remains in place.
After outperforming year-to-date, currencies weakened in June as commodities sold off on global recession fears. Leftist candidate Gustavo Petro won Colombia’s presidential election and his foreign minister appointment was well received. Protests continued in several countries.
Central and Eastern Europe
Inflation continued to surprise to the upside. Hawkish monetary policy kept the pressure on local bonds across the region over much of the month, while currencies came under renewed pressure from weakness in the euro and continued high energy prices.
Rest of Europe, Middle East and Africa (EMEA)
While there has been increased attention on finding a way for Ukraine to export its agriculture products, a deal seems unlikely, near term. Ukraine is struggling to finance itself but foreign budget support is finally stepping up. It was a volatile month for assets in Turkey and the authorities introduced further unorthodox measures to stem lira weakness.
EM corporate debt highlights
In a similar vein to EM hard currency sovereign debt markets, concerns over the economic outlook combined with higher US rates weighed on EM corporate bonds, with the JP Morgan CEMBI falling 3.1%. Given the market’s increased fears of a US and global recession, high-yield debt underperformed investment grade (IG).