Chapters
Market background
US Treasury yields fell significantly in February, with the 10-year yield ending the month at 4.2% after spiking to above 4.6% earlier in the month. Conflicting forces driving this volatility included a weakening of market sentiment and mixed macroeconomic signals: US inflation (CPI) data exceeded expectations, and inflation forecasts rose, but weaker-than-expected services PMI data indicated a contraction in economic activity. US trade tariff uncertainty continued, with tariffs imposed on China, Mexico and Canada in early March. Federal Reserve Chair Powell suggested that tariffs could increase inflation, dampening expectations of rate cuts; as of the end of February, the market was pricing in c.70bps of cuts by December 2025.
Against a volatile global backdrop, the emerging market (EM) fixed income asset class delivered positive returns in February.
The local currency debt market (JP Morgan GBI-EM) gained 0.7%, driven by bonds – EM currencies were broadly flat on the month. Latin American markets were among the top performers, with Mexico's bonds benefiting from further dovish comments from the country's central bank. In contrast, Turkey's local bonds underperformed as a higher-than-expected inflation print added uncertainty around the central bank's rate-cutting cycle.
Hard currency sovereign markets performed well, with the JP Morgan EMBI posting a 1.6% gain. This was led by investment-grade bonds (2.3%), which benefited from the fall in US Treasury yields. The high-yield part of the market gained 0.9%, boosted by a rally in some more distressed markets, such as Lebanon, which is moving closer to an IMF deal. Underperforming markets included Ecuador, which sold off meaningfully after the opposition candidate performed much better than expected in the first round of the country's presidential elections.
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.
