LONDON (FT) - Emerging market bonds are suffering their worst losses in almost three decades, hit by rising global interest rates, slowing growth and the war in Ukraine.
The benchmark index of dollar-denominated EM sovereign bonds, the JPMorgan EMBI Global Diversified, has delivered total returns of around minus 15 per cent so far in 2022, its worst start to the year since 1994.
The decline has only been slightly eased by the broad rally across global markets in recent days, which ended a seven-week losing streak for Wall Street stocks. Nearly $36bn has flowed out of emerging market mutual and exchange traded bond funds since the start of the year, according to data from EPFR; equity market flows have also gone into reverse since the start of this month.
“It’s certainly the worst start I can remember across the asset class and I’ve been doing EMs for more than 25 years,” said Brett Diment, head of global emerging market debt at Abrdn.
Developing economies were hit hard by the coronavirus pandemic, straining their public finances. Rising inflation, slowing global growth and the geopolitical and financial disruption caused by Russia’s war in Ukraine have added to the economic pressures they face.
The investment outflows threaten to worsen their woes by tightening liquidity. David Hauner, head of EM strategy and economics at Bank of America Global Research, said he expected the situation to get worse. “The big story is that we have so much inflation in the world and monetary policymakers continue to be surprised by how high it is,” he said. “That means more monetary tightening and central banks will continue until something breaks, the economy or the market.”