US Treasury (10 Yr Generic)

What to Expect of EM Rates When Expecting US Rates to Stay Volatile?

FX & Rates
166 Views, 21 Jan 2022 00:24
EXECUTIVE SUMMARY
  • The risk of US yields continuing to rise is high especially with inflation not having peaked yet, the Fed potentially reducing its balance sheet, and real rates still negative.
  • The high volatility in US rates does not bode well for EM rates due to their high correlation even though EM local debt is overall cheap based on most metrics.
  • Until the volatility in US rates subsides, it is best to focus on cross-country and curve trades in EM, with my preference for curve steepening trades in several countries.
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Gautam Jain, PhD, CFA
Fixed Income and Currency Strategist
FX & RatesMacroeconomics

Gautam Jain has over 25 years of experience covering global emerging fixed income and currency markets, both as a strate... 

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