Chapters
Market background
March was another volatile month for financial markets, resulting in a mixed performance among emerging market fixed income and currency markets.
US Treasury yields ended the month slightly lower across parts of the yield curve, with uncertainty around the US economic outlook counteracting the upward pressure on yields from a rise in inflation expectations. Moves were more pronounced in European bond markets, where yields rose significantly in response to a shift in fiscal dynamics – namely, rising defence spending. The rise in bond yields was most prominent in Germany as the government loosened its fiscal rules.
Turning to emerging markets (EM), the local currency debt market (JP Morgan GBI-EM) gained 1.5% in March, with EM currency moves driving this. The strong rally in the Euro helped Central and Eastern European currencies to perform well, while the Brazilian real was boosted by the hawkish central bank. In contrast, following the government’s crackdown on key political opponents, there was a meaningful sell-off in Turkish local assets.
The EM hard currency sovereign debt index (JP Morgan EMBI) returned -0.8%, with investment-grade markets (-0.2%) outperforming high yield (-1.3%). Assets in Lebanon and Ukraine were volatile, while presidential election uncertainty weighed on asset prices in Ecuador. The EM corporate debt market (JP Morgan CEMBI) delivered a flat total return of 0.1%. The investment-grade market outperformed; a widening of credit spreads weighed on total returns in the high-yield market.
