Chapters
Market background
While uncertainty in the Middle East continued and oil prices remained elevated, risk appetite recovered. This helped emerging market (EM) fixed income to perform well, returning year-to-date performance to positive territory. US dollar weakness provided a further boost to FX markets.
US Treasury yields ended the month slightly higher across the curve, reflecting a combination of ongoing geopolitical uncertainty, persistent inflationary pressure and a more hawkish Federal Reserve (Fed).
The local currency debt market (JPMorgan GBI-EM GD) gained 2.8% in US dollar terms over the month, with both FX and local rates moves contributing to performance. Hungarian debt topped the performance tables after a landslide victory by the opposition party increased the prospects of a closer relationship with the European Union and the release of previously frozen EU funds. Currencies in Latin America also performed well, helped by improved risk appetite, with the Brazilian real, Mexican peso and Chilean peso all among the top performers in the index.
The hard currency sovereign debt market (JPMorgan EMBI GD) also had a strong month, gaining 2.9%. This was led by the high-yield segment, which gained 4.1%, while investment-grade bonds lagged, delivering returns of 1.6%. As US Treasury yields rose slightly over the month, the positive return was entirely driven by credit spreads moves, especially among lower-rated issuers. By region, African markets were the top performers, followed by Latin America. Top-performing countries in the index included Ukraine, which was boosted by the election outcome in Hungary as the outgoing incumbent president had blocked Ukrainian financing. Angolan debt also performed well, as the oil-exporting economy is benefitting from higher commodity prices.
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.
