Chapters
Market background
It was a challenging end to the year for EM fixed income, as developed market bond yields rose, particularly in the US. US Treasury yields resumed their rise given signs of sticky inflation and hawkish forecasts from the US Federal Reserve (Fed) – with the Fed’s ‘dot plots’ pointing to just two rate cuts in 2025, down from four in its previous meeting. The US dollar continued its recent strong run against a global basket of currencies, helped by the Fed’s hawkish stance.
Against this backdrop, EM fixed income and currencies struggled, with the local currency debt market (JP Morgan GBI-EM GD) down 1.9% overall, driven by EM FX (-1.5%), with rates returning -0.4%. EM FX was weighed down by the continued US dollar strength, with some Latin American currencies under notable pressure. In the hard currency space, the sovereign market (JP Morgan EMBI GD) fell 1.4%, driven by investment-grade markets which are more sensitive to the moves in US Treasury yields. The high-yield area of the hard currency market fell by a more modest 0.6%, with strong performance by Lebanon, Argentina and Ukraine lifting the overall index.
