Emerging market bonds set to take some losses
local-currency bonds is souring as investors dump bets on interest-rate cuts, fears of a tariff trade war grow, and the dollar surges.
A Bloomberg index of developing-nation local debt has tumbled 3.5% since the start of October, trimming the year's gain to less than 2%. The slide has accelerated since the election victory of Donald Trump, whose «America First» policies are seen as harmful for emerging markets, and whose economic agenda has pushed up the dollar and Treasury yields.
«I'm losing faith in EM local debt as the high likelihood of a new trade war will weaken their currencies and delay the pace of rate cuts,» said Rajeev De Mello, a global macro portfolio manager at Gama Asset Management SA in Geneva. «Higher US bond yields associated with expectations of higher US deficits also put upward pressure on EM local bond yields.»
Concern over the likely impact of Trump's policies has seen traders dial back bets on rate cuts across emerging markets. An index of one-year swaps from 18 emerging economies has jumped more than 16 basis points this quarter, set for its largest quarterly gain in more than a year, based on data compiled by Bloomberg.
The surge in the dollar following Trump's election victory is fueling speculation central banks across the developing world will be compelled to delay any anticipated rate cuts to support their beleaguered currencies.
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