Citi's latest report on ASEAN bond demand highlights a significant shift towards local currency bonds in Indonesia, Thailand, and Malaysia, reducing reliance on foreign investors. In Indonesia, banks, Bank Indonesia, and insurance funds are expected to be the primary buyers of government bonds, with banks projected to purchase IDR 166 trillion in 2025. This shift is attributed to potential policy rate cuts
Citi's latest update on its Emerging Market Foreign Exchange (EMFX) factor investing strategy reveals a challenging start to 2025, with the long/short model down 32 basis points in January, despite a 2.1% rise in the long-only benchmark. The report highlights that economic surprises were the only factor to post gains, while other strategies, including momentum and carry, faced setbacks. "EMFX (equal-weighte
Emerging market central banks are grappling with the uncertainty surrounding potential US tariffs, which complicates their monetary policy decisions. In Mexico, traders are anticipating rate cuts due to stuttering growth, but the threat of tariffs and currency weakness could lead to inflationary pressures, potentially pushing the central bank towards rate hikes. The upcoming Banxico meeting is expected to p
Emerging market central banks are grappling with the complexities introduced by potential US tariffs, which could lead to inflationary pressures through currency devaluation. Mexico, with one of the most restrictive policy rates among major economies, is in the process of easing. However, the anticipated rate cuts may be tempered by inflationary pressures from tariffs and a weakening currency, potentially l
Emerging market local currency bonds have experienced their largest inflow since January 2023, with a $1.40 billion increase, according to a recent BofA Global Research report. This marks a significant turnaround from the previous week's outflow of $0.55 billion. The report highlights a broader trend of strengthening inflows across various asset classes, including U.S. high-grade bond funds and ETFs, which
Citi's latest Emerging Markets Strategy Weekly report highlights a cautious outlook for emerging market local currency bonds (EMLC) amid evolving global macroeconomic conditions. The report suggests a negative bias towards EMFX in the coming months, driven by uncertainties in EUR FX and China's economic policy. Citi analysts note, "We remain of the view that one should be trading EMFX with a negative bias i
Citi's latest report highlights a cautious optimism for emerging markets (EM) as President Trump's second term begins without immediate tariff impositions. The absence of tariffs on Day 1 offers a "window for the dollar to retrace," though the unwind has been modest, with the dollar still tracking the 10-year rate differential more closely than the 2-year, according to Citi analysts. This development provid
Emerging market bonds are facing heightened pressure due to increased currency volatility under the new US administration, which has been fueled by headline risks and tariff uncertainties. This volatility has a more pronounced impact on EM bonds compared to equities, as evidenced by the substantial inverse relationship between currency swings and bond performance since mid-December. The MSCI EM ex China equ
Emerging market assets are facing renewed pressure as the Trump administration signals potential tariffs on Canada and Mexico by February 1. This announcement revives concerns from his first term, where similar timelines were often set but not met. The uncertainty surrounding these tariffs adds to the headline risks that keep emerging markets on edge, particularly as they navigate challenges like a sluggish
Citi Research highlights the growing risk of fiscal intolerance in emerging markets (EM) due to a rising US term premium, which has increased by over 100 basis points since mid-September 2024. This shift poses challenges for EM economies with fiscal vulnerabilities, such as Brazil, Colombia, and Mexico. "The rise in US term premium raises the risk of less tolerance for EM fiscal slippages," Citi analysts no
Citi's latest report underscores the continued dominance of US economic resilience in shaping emerging market (EM) bond strategies. Despite a deceleration in the USD rally and core rates selloff, investors remain cautious about the potential impact of President Trump's upcoming trade tariff revisions. "Even in an environment of gradual tariff hikes, we still find it difficult to believe flows would somehow
Emerging market local currency bonds are facing a tough start to 2025, as rising developed market (DM) yields and uncertainties surrounding U.S. economic policy create headwinds, according to Citi's latest report. The report highlights that Asian markets have shown resilience due to attractive real rates and domestic support, but warns of medium-term vulnerabilities in EMFX due to U.S. policy impacts on cap
Citi's latest report on CEEMEA foreign exchange and rates highlights a shift towards tactical trades in emerging markets (EM) fixed income, as volatility is expected to rise amid geopolitical uncertainties, including the impact of "Trump 2.0." The report notes that EM local currency funds saw a recovery in 2024, ending with a small cumulative outflow of $1.4 billion, a significant improvement from the $11.8
According to Morgan Stanley's latest report, emerging market (EM) local currency bonds are poised for a strong performance in 2025, driven by a significant depreciation of the US dollar. The report highlights that "material USD weakness sees EMFX trade very strongly," which is expected to benefit long-end EM local currency bonds with high real yields, particularly in Brazil, Mexico, Indonesia, and South Afr
Emerging markets are currently facing heightened volatility, with Brazil at the forefront due to its troubling fiscal situation. Concerns over fiscal stability have led to a selloff in Brazilian markets, prompting investors to exercise caution. According to Mark Cudmore, the current environment suggests that it may not be the right time to buy the dip in emerging markets. The political transition in the Uni
According to the latest BofA Global Research FX and Rates Sentiment Survey, conducted between December 6 and 11, 2024, investor sentiment towards emerging market (EM) currencies has reached its lowest point since 2022. The survey, which included responses from 45 fund managers with a combined USD 748 billion in assets under management, highlights a growing bearish outlook on EM FX, despite optimism regardin
Emerging market currencies are increasingly sensitive to fluctuations in U.S. real yields, posing challenges for more vulnerable EM currencies, according to Citi's latest report. As U.S. growth expectations recalibrate to a more resilient stance, this has led to an upside in the front-end of the U.S. curve, supporting rising U.S. real yields. "EMFX has recently gained sensitivity to fluctuations in US real
Emerging market (EM) local currency bonds are navigating a complex landscape as geopolitical risks loom large, according to Citi's latest report. The report highlights that while EM high-yield (HY) bonds have become more market-driven, investment-grade (IG) bonds are grappling with idiosyncratic risks, particularly in countries like Panama, Mexico, and Saudi Arabia. "We see limited value in EM IG sovereigns
At the recent Emerging Markets Traders Association (EMTA) Annual Meeting, Citi analysts highlighted a preference for emerging market (EM) credit over local assets, amid a challenging global macroeconomic environment. The consensus among panelists was cautious on EM local currencies, particularly EMFX, due to anticipated narrow, China-focused tariffs and a stronger U.S. dollar. "EM credit was the clear favor
Citi's latest report on Latin American economies underscores significant inflationary pressures in Brazil, with the Central Bank of Brazil (BCB) facing mounting challenges. The BCB's Focus survey reveals a notable rise in inflation expectations, with year-end forecasts for 2024 climbing to 4.84% from 4.71% last week, and 2025 projections increasing to 4.59% from 4.40%. These figures exceed the upper target