Amid the continued closure of the Strait of Hormuz, concerns around energy supply disruption and the potential pass-through into inflation have quickly fed into global central bank pricing. In this week’s Bond Bulletin, we assess whether the resulting repricing has created value in emerging market (EM) local debt, and whether investors are being adequately compensated for the risk of a more persistent inflation shock.
Implications for Fixed Income Investors
The repricing in EM local debt has created a more attractive opportunity set, but selectivity is essential. The market has moved from pricing an easing cycle to discounting potential rate hikes across several regions. In some cases, that shift is justified by the inflation risks from higher energy prices. In others, the adjustment may have gone too far, particularly where real yields are already positive and central banks remain cautious rather than decisively hawkish. Overall, EM local debt continues to offer attractive income and elevated real yields. For active investors, this environment should create opportunities to add exposure selectively, focusing on markets where central bank pricing has become too hawkish and fundamentals remain resilient.
About the Bond Bulletin
Each week J.P. Morgan Asset Management's Global Fixed Income, Currency and Commodities group reviews key issues for bond investors through the lens of its common Fundamental, Quantitative Valuation and Technical (FQT) research framework.
Our common research language based on Fundamental, Quantitative Valuation and Technical analysis provides a framework for comparing research across fixed income sectors and allows for the global integration of investment ideas.