EMLC - EM Government Bonds Reap The Rewards Of Fiscal Responsibility

2024-02-17 07:06:00 ET

Summary

• Hard currency EM debt has outperformed both DM government bonds and EM local currency bonds by a much greater degree over the past two decades.
• Low debt and deficits have allowed emerging markets' monetary authorities to conduct inflation-focused monetary policy, while high debt and deficits in developed markets have diluted central bank independence and their focus on inflation.
• Global bond markets are now beginning to recognize the risks embedded in DM government debt and reward the responsible fiscal and monetary policies that have been pursued by many emerging markets over the past several decades.

Over the last five years, EM local currency debt has outperformed G7 government debt despite COVID, unprecedented Fed tightening, a strong dollar rally, wars in Ukraine and Gaza, and a slowing China.

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