EM credit and rates will likely do well under the President-elect Biden administration in 2021, as income effects (higher growth) more than offset price effects (higher UST yields). In the report ‘EM Fixed Income – As good as it gets?’ UBS Asset Management’s experts outline how EM FI will likely perform in 2021.
EM currencies will likely do better in a weaker US dollar environment, as long as UST yields sell off in an orderly fashion, and EM spreads have fully converged to fair value; one compatible with weaker macroeconomic fundamentals.
Highlights of the report:
- Emerging Markets fixed income (EM FI) had a strong Q4, reflecting record easy global financial conditions and lower post US election uncertainty that trumped the new pandemic wave.
- EM investment Grade spreads are at pre-pandemic levels. EM high yield spreads are 100 bsp wider than pre-pandemic levels, but lower capacity-to-pay warrant those higher risk premiums.
- EM rates are at record lows in most countries and offer little value while most EM currencies are still fundamentally undervalued.
- Returns in Q1 2021 will likely continue to reflect global factors, include the pace and size of stimulus in developed economies and pandemic developments.
Here you'll find the full report ‘EM Fixed Income – As good as it gets?’ from UBS Asset Management.
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