Emerging markets fixed income delivered mixed returns in Q4 2018 with sovereign and corporate credit recording negative returns amid a significant widening of spreads. This was only partially offset by the rally in US Treasury yields. Meanwhile, local EM saw positive returns as lower yields offset weaker currency affects almost everywhere.
We have started the year with a more constructive stance on the potential for positive returns for EM fixed income, with the following possible scenarios in mind:
- Trade wars subside: no additional tariffs
- Developed market growth resynchronises: US slows and Europe is stable
- Commodity prices recover and stabilize