Chapters
Market background
Continuing with the strong year-to-date theme, October was another positive month for the emerging market (EM) fixed income asset class. A healthy appetite for risk boosted EM bond markets, with US Treasury market moves also helping.
In the US, a combination of ongoing uncertainty relating to the government shutdown and hopes of further easing from the US Federal Reserve (Fed) supported the Treasury market. Towards the end of the month, the Fed cut its benchmark rate by 25bps, citing concerns about weak job growth. However, Powell's statement that further easing in December was not a "foregone conclusion" caused Treasury yields to rise again, as the market dialled back its expectations of a December rate cut. For October overall, the US Treasury yield curve flattened, as shorter-dated yields underperformed the longer end.
Turning to EMs, the sovereign hard currency debt market delivered a 2.1% return. Credit spreads tightened – especially in the high-yield segment – and the decline in US Treasury yields also contributed to returns. Argentina was the top performer in the index – the country's bonds rallied sharply after President Milei's party performed better than expected in the national midterm elections, clearing the path for further economic reforms.
The local currency debt market gained 0.5% in US dollar terms, despite the US dollar strengthening against EM currencies – particularly in Central and Eastern Europe – reflecting a weaker euro. Bonds in South Africa and Indonesia performed well, while strong copper prices remained supportive for the Chilean peso and the Peruvian sol.
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.
