EM fixed income is attractive as Fed looks to cut rates this year – Ninety One

by | Jan 31, 2024

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Ahead of today’s Fed interest rate decision, Werner Gey van Pittius, Co-Head of Emerging Market Fixed Income at Ninety One has commented.

He said: “The Federal Reserve’s FOMC is likely to keep rates on hold today, in line with market expectations. March is a more likely date, with the market probability 50/50 for a rate cut and overall, more than 5 rate cuts expected over 2024. In contrast, EM central banks started hiking a full year before the Fed with Brazil in Q1 2021 and hence have the space to continue its cutting cycle. The orthodox and conservative monetary policy combined with overall fiscal prudency in mainstream EM (and Frontier) markets have laid a foundation of resilience. 

“In particular, we think fixed income assets overall in EM are attractive during this cutting cycle, whilst yield levels still protect and support EM currencies. The tail risk of Frontier market funding that came to the fore in 2022 is being resolved with private lenders and official creditors more constructive, and overall yields falling to levels that might re-opening the external bond market to borrowers. In fact, as global interest rate volatility declines with more predictable inflation, we expect to see more significant demand for this relatively high yielding asset class.” 

 
 

Source: Bloomberg data, Ninety One calculations. EM average comprises the 20 countries included in the JP Morgan GBI-EM Global Diversified index.

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