Senior Portfolio Manager Anthony Kettle’s weekly BlueBay Emerging Market Debt commentary offers readers a concise yet wide-ranging macro overview. Kettle covers markets large and small, providing insight on how financial, political, and economic developments in one region affect markets elsewhere. Here is his latest insight.
Summary
It was another week of large swings in markets, despite volatility coming in at slightly lower levels. When all was said and done, the weekly moves showed the S&P down -1.5% and the Russell 2000 up +1.1%, while the Euro Stoxx 50 gained +3.1% and emerging markets (EM) equities +2.1%, as investors continued to search for value in markets away from the US. The US rates curve bull steepened, with 2-year yields 16 basis points (bps) lower and 30-year yields 7bps lower. Meanwhile, US real yields moved 17bps lower at the 10-year point to end the week at +2.09%.
In EM credit markets, spreads were 3bps wider in corporates and 20bps tighter in sovereigns, while total returns were +1% for corporates and +2.2% for sovereigns. In EM corporates, outperformance came from the oil & gas and metals & mining sectors, while the financials sector was a laggard. In the sovereign space, high-yield names bounced back, with parts of Africa performing positively alongside Argentina, which was supported by the announcement of a new International Monetary Fund (IMF) deal, with the associated relaxation of capital and currency controls.
In EM local markets, total returns were up +1.2%, with foreign exchange (FX) the key driver of returns. In terms of the regional performance, FX in Latin America was the top performer, with the Brazilian real and Mexican peso positive, while the high-beta nature of the South African rand also meant that it performed positively.
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