Emerging Markets Raise Bond Rates

Emerging markets' central banks are raising short-term interest rates to defend plunging currencies and counter the effect of forthcoming QE tapering in the US

Dave Sekera, CFA 24 September, 2013 | 11:36AM


Among Morningstar's fixed-income indexes, the emerging markets have been some of the worst-performing categories since the beginning of the year. Over the past few years, easy money policies for the developed world have sent substantial capital flows to the emerging markets in search of higher yields. However, as investors became increasingly convinced that the Federal Reserve was going to begin tapering its asset purchases this fall, those capital flows reversed. Losses have been driven by a combination of capital outflows as well as rising interest rates. To stem the capital outflow, many countries' central banks have been raising their short-term lending rates to defend their currencies. As their currencies begin to recover their losses, the indexes have begun to recapture some of their losses. 

At its lowest point toward the end of June, the Emerging Market Composite Index had declined 8.70%, but it is currently down only 4.81%. Among the constituent members of this index, year to date through Sept. 20, the Emerging Markets Sovereign Bond Index has suffered a 3.15% loss and the Emerging Markets Corporate Bond Index has declined 3.65%. Morningstar's Emerging Markets High Yield Bond Index has declined 4.5%.

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About Author

Dave Sekera, CFA  is a senior securities analyst with Morningstar.

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