Market review

In November, hard-currency emerging market debt (EMD) (1) returned 5.66%, while local-currency EMD (2) returned 5.27%. In EM corporate debt (3), the total return over the month was 3.64%.

In hard-currency EMD, the rally in US Treasury yields boosted performance, with 10-year yields falling by 61 basis points (bps) to 4.33%. This was the largest monthly decline since July 2021. There was also a positive impact from spreads, which tightened by 31bps. The US economy’s resilience was again on display in November, as third-quarter annualised GDP growth was revised 0.3% higher to 5.2%. US inflation was lower than expected, with headline consumer price inflation coming in at 3.2% in October, versus the predicted 3.3%. As a result of this positive economic news, markets raised their expectations of US Federal Reserve rate reductions, with a cut now fully priced in by the May meeting. 

In local-currency EMD, there was a positive contribution from foreign-exchange returns (+2.63%). The US dollar reversed its three-month strengthening trend as it depreciated against a basket of major currencies. Local EM bonds (+2.57%) also helped returns over the month. In EM corporate debt, declining US Treasury yields and the tightening of spreads positively affected performance.  


EMD markets rose in November thanks to strengthening  US Treasuries. Spreads also rallied, as investors continue to hope for an economic ‘soft landing’. Additionally, the decline of energy prices over the month pointed towards the path of disinflation. Lower energy prices can benefit the balance of payments for net energy importers. This could help progress on inflation for those economies where energy-driven components constitute a large portion of the consumption basket.

The ‘Goldilocks’ scenario for EMD would combine the current expected path for US interest rates with the avoidance of an outright recession and a weaker US dollar. However, higher US interest-rate expectations and increasing financial stability risks could dampen investor sentiment and lead to a more challenging environment for risk assets. 

We continue to add duration due to attractive yields. However, we remain cautious where countries have challenging amortisation schedules with a significant need for market access, given the higher cost of financing. Lastly, we anticipate continued support from multilaterals and progress to be made on several restructurings following the International Monetary Fund and World Bank meetings last month.

  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