Chapters
Market background
President Trump's "Liberation Day" announcements resulted in significant volatility in the US Treasury market, amid heightened uncertainty around tariffs and their implications for economic growth. The Treasury market reaction prompted the US administration to announce a 90-day pause on all tariffs, with the exception of China. By the end of the month, the Treasury yield curve had steepened, with front-end yields (bonds with a maturity of 1-5 years) lower, 10-year yields broadly unchanged, and 30-year yields higher. In reflection of weaker growth expectations, markets are now pricing in approximately 100 basis points (bps) of Federal Reserve rate cuts by year end, up from around 75 bps at the start of April.
The tariff announcement resulted in the US dollar weakening, supporting EM currencies. It also prompted downward revisions to global growth forecasts, which helped EM local currency bond markets by pushing down bond yields. This all resulted in the local currency debt market (JP Morgan GBI-EM) posting a positive return of 3.2% in April. Within the overall market, Eastern European currencies performed particularly well against the US dollar, with the Hungarian forint and Czech koruna rallying in tandem with the euro. Local currency bonds in Brazil also rallied, helped by somewhat dovish comments from the country’s central bank.
The hard currency sovereign debt index (JP Morgan EMBI) delivered a slightly negative return (-0.2%), with investment-grade bonds (+0.2%) outperforming high yield (-0.6%). Hard currency debt markets in Latin America delivered positive returns, most notably in Ecuador, after a positive market reaction to the incumbent president's election win. In contrast, Venezuela's bonds posted a negative return, reflecting concerns over the impact of a weaker oil price.
General risks. The value of investments, and any income generated from them, can fall as well as rise. Where charges are taken from capital, this may constrain future growth. Past performance is not a reliable indicator of future results. If any currency differs from the investor's home currency, returns may increase or decrease as a result of currency fluctuations. Investment objectives and performance targets are subject to change and may not necessarily be achieved, losses may be made. Environmental, social or governance related risk events or factors, if they occur, could cause a negative impact on the value of investments.
Specific risks. Emerging market (inc. China): These markets carry a higher risk of financial loss than more developed markets as they may have less developed legal, political, economic or other systems.
