Emerging Market Debt Commentary – Q1 2021

Emerging market debt (in USD terms) experienced a weak first quarter as markets reacted to a number of developments that included investor concerns about rising US Treasury yields leading to a pick-up in market volatility across asset classes; a modest increase in COVID-19 cases in some regions slowing down the recovery in travel and tourism sectors; political developments in some Latin American countries; and idiosyncratic events in Turkey. Markets are also starting to price in the scope of EM central banks responding to rising external inflation pressures. Even though EM fund flows saw a deteriorating trend in the last four weeks of the quarter, overall year-to-date flows were positive with flows of +$5.2bn and +$9.3bn into hard currency and local currency assets, respectively (source for flows: Morgan Stanley).