October 10, 2019

The time for investments in EM hard currency sovereign debt has not come yet

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In Short

Despite a slight spread widening, EM hard currency sovereign bonds have yielded a strong return year-to-date – thanks to decreasing underlying yields.
The time for investments in EM hard currency sovereign debt has not come yet
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Highlights:

  • Despite a slight spread widening, EM hard currency sovereign bonds have yielded a strong return year-to-date – thanks to decreasing underlying yields.
  • While capital inflows have subsided in recent weeks, the outlook, given the low yield environment, is rather positive going forward. Moreover, the limited financing needs in Q4 curtail the upcoming supply.
  • However, persisting recession fears and political risks are expected to trigger somewhat higher spreads in the near term.
  • The outlook for 2020 is more constructive. A modest rebound of the world economy and a weakening USD are likely to contribute to a modest tightening of EM hard currency bond spreads.

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THE TIME FOR INVESTMENTS IN EM HARD CURRENCY SOVEREIGN
DEBT HAS NOT COME
YET

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