Market Review

In March, hard-currency emerging-market debt (EMD) returned 2.09% [1], while local-currency EMD returned -0.60% [2]. In EM corporate debt, the total return over the month was 1.00% [3].

In hard-currency EMD, positive economic data raised hopes for a soft landing, as US nonfarm payrolls increased by 275,000 in February, up from 229,000 in January. Over the same period, the unemployment rate rose from 3.7% to 3.9%, marking the highest level since December 2021. This data indicated that, while the labour market remains resilient, there are indications of cooling. Elsewhere, there were higher-than-expected month-on-month readings for both US core consumer inflation (+0.4%) and producer price inflation (+0.6%) in February. Meanwhile, oil prices rose 4.62% over the month to $87.48 per barrel, their highest level since October. Ultimately, dovish sentiment prevailed, and the 10-year US Treasury yield fell 5 basis points (bps) to 4.20%, while the US 2-year Treasury yield remained stable. The 2-year/10-year yield curve inverted by a further 5 bps to end the month at -42 bps. Spreads also contributed positively, tightening by 27 bps in March.

In local-currency EMD, the strong US dollar over the month led to a negative contribution from foreign-exchange returns (-0.67%). Latin American countries, such as Uruguay, Mexico, and the Dominican Republic, remained among the top performers. As noted previously, these countries' central banks are further along in their easing cycles, yet still enjoy positive real interest-rate differentials compared to the US. This helped shield their currencies from more significant losses. EM corporate debt benefited from the tightening of spreads, returning +1.00% for the month.


March was another good month for EMD as spreads tightened in line with the rise in risk assets, supported by ongoing hopes of a soft landing. We continue to see value in high yield (HY) and frontier space, where spreads and yields look attractive. However, we remain cautious where countries have challenging amortisation schedules and a significant need for market access given higher financing costs. A number of countries’ sovereign bonds have yields in excess of 10%, making market access difficult to justify. Nonetheless, we expect continued support from multilaterals and alternative sources, which reduces default risk and provides ample room for spread compression, as well as a fall in yields.

In EM local markets, we remain overweight Latin America due to attractive real rates in the region. Less elevated economic growth and contained domestic wage pressures also provide more room for central banks to cut rates. We've been adding duration in Asia in anticipation of rate cuts, which should start around the middle of this year. EM local bond yields typically move lower during the US Federal Reserve (Fed)’s easing cycles. This could also put pressure on the US dollar and provide scope for EM currencies to appreciate. On the other hand, central banks may be challenged by a strong US dollar, and narrow rate differentials with the US, particularly if the Fed keeps rates on hold for longer. This would make valuations seem less compelling.

For EM corporates, credit fundamentals remain supportive. As global economic growth slows, we are likely to see downward adjustments to operational performance; however, leverage levels remain low and interest coverage healthy. The asset class continues to offer good value versus developed-market credit, namely in HY. The ‘Goldilocks’ scenario for EM combines the current rate path for the Fed with slower US growth and a weaker US dollar. The scenario that could lead to a risk-off environment would be a higher terminal rate if inflation remains elevated.


  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