Market Review

In December, hard-currency emerging-market debt (EMD)1 returned 4.73% (1), while local-currency EMD returned 3.21% (2). In EM corporate debt, the total return over the month was 3.07% (3).

In hard-currency EMD, the continued rally in US Treasury yields was the main driver of performance, with the 10-year Treasury yield falling below 4.00%, having touched 5.00% as recently as October. Spreads also contributed positively, tightening by a further 21 basis points in December. Expectations for an initial US Federal Reserve (Fed) rate cut were brought forward to the first quarter of 2024, as US annual consumer price inflation came in lower than expected again, slowing to 3.1% in November. Meanwhile, the annual Personal Consumption Expenditures Price Index was revised 0.3% lower to 2.0% quarter on quarter. A strong US jobs report added to the soft-landing narrative, with nonfarm payrolls rising 199,000 in November.

In local-currency EMD, the depreciating US dollar led to a positive contribution from foreign-exchange returns (+1.17%). A more dovish Fed has meant that the US dollar has continued to retreat from its 12-month high, depreciating against a basket of major currencies. Local EM bonds (+2.01%) also helped returns over the month. EM corporate debt continued to benefit from declining US Treasury yields and the tightening of spreads, returning 3.07% for the month.


EMD markets rose in December, further benefiting from the move in US Treasuries, while spreads tightened on mounting hopes of a soft landing. A dovish Fed and the end of the US economy’s relative growth advantage could benefit EMs, as the gap between EM and developed-market growth widens.

The ‘Goldilocks’ scenario for EMs combines the current rate path for the Federal Reserve, resulting in weaker US growth and a softer US Dollar. The two scenarios that could lead to a more challenging environment for risk assets would be higher interest rates due to inflation remaining elevated or markedly lower bond yields due to financial stability risks.

We continue to see value in high yield and frontier markets due to attractive spreads and yields. But we remain cautious where countries have challenging amortisation schedules and a significant need for market access given higher financing costs.


The value of investments and the income from them can go down as well as up, and investors may get back less than the amount invested. Past performance is not a guide for future results.



  1. As measured by the JP Morgan EMBI Global Diversified Index
  2. As measured by the JP Morgan GBI-EM Global Diversified Index (unhedged in US dollar terms)
  3. As measured by the JP Morgan CEMBI Broad Diversified Index